<PAGE>
UNITED STATES
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, 1998
[ ] 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 9, 1998, 21,220,186 shares of Registrant's Common Stock, $1.00 par
value, were outstanding.
Page 1 of 17
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INDEX
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets -- August 31, 1998 and May 31, 1998.......3
Consolidated Statements of Income -- three months ended
August 31, 1998 and August 31, 1997................................4
Consolidated Statements of Cash Flows -- three months ended
August 31, 1998 and August 31, 1997................................5
Notes to Consolidated Financial Statements............................6
Independent Accountants' Review Report...............................11
Item 2. Management's Discussion and Analysis of Operating Results
and Financial Condition...........................................12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.....................................Not Applicable
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................................15
SIGNATURES
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CONSOLIDATED BALANCE SHEETS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited)
August 31, May 31,
- --------------------------------------------------------------------------------
In thousands 1998 1998
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 28,275 $ 16,718
Notes and accounts receivable 137,653 151,235
Inventories 204,955 162,010
Prepaid expenses 56,117 41,949
---------- ----------
TOTAL CURRENT ASSETS 427,000 371,912
OTHER ASSETS
Real estate and other investments 11,885 13,302
Goodwill and other intangibles 152,054 153,375
Other 38,434 30,735
---------- ----------
202,373 197,412
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 143,995 142,701
Buildings 70,035 69,900
Machinery and equipment 895,806 889,228
Construction in progress 274,492 160,758
---------- ----------
1,384,328 1,262,587
Less allowances for depreciation 661,596 646,080
---------- ----------
722,732 616,507
---------- ----------
$1,352,105 $1,185,831
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 95,551 $ 80,495
Accrued interest, wages and other items 58,511 51,067
Current portion of long-term debt 13,331 13,382
---------- ----------
TOTAL CURRENT LIABILITIES 167,393 144,944
LONG-TERM DEBT 322,931 405,749
DEFERRED FEDERAL INCOME TAXES AND OTHER CREDITS 82,349 81,812
COMPANY-OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY HOLDING
SOLELY COMPANY CONVERTIBLE DEBENTURES 200,000 --
SHAREHOLDERS' EQUITY
Common stock, $1 par value 25,067 25,067
Additional paid-in capital 255,735 255,735
Retained earnings 383,917 358,307
Cost of common shares in treasury (85,287) (85,783)
---------- ----------
579,432 553,326
---------- ----------
$1,352,105 $1,185,831
========== ==========
See notes to consolidated financial statements.
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(Unaudited)
CONSOLIDATED STATEMENTS OF INCOME
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
Three months ended
August 31,
- --------------------------------------------------------------------------------
In thousands except per share 1998 1997
- --------------------------------------------------------------------------------
NET SALES $299,108 $297,060
COSTS AND EXPENSES (INCOME)
Cost of products sold 228,444 232,474
Selling, general and administrative 25,064 22,957
Interest 4,291 4,373
Other income (2,424) (1,967)
-------- --------
255,375 257,837
-------- --------
INCOME BEFORE THE FOLLOWING ITEMS 43,733 39,223
Income taxes 14,739 12,975
-------- --------
28,994 26,248
Net dividends on preferred securities of subsidiary (1,708) --
Minority interest in Chaparral -- (1,538)
-------- --------
NET INCOME $ 27,286 $ 24,710
======== ========
BASIC
Average shares 21,321 21,001
Earnings per share $ 1.28 $ 1.18
======== ========
DILUTED
Average shares 24,825 21,429
Earnings per share $ 1.17 $ 1.16
======== ========
Cash dividends $ .075 $ .075
======== ========
See notes to consolidated financial statements.
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(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
Three months ended
August 31,
- --------------------------------------------------------------------------------
In thousands 1998 1997
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 27,286 $ 24,710
Loss (gain) on disposal of assets (220) 188
Non-cash items
Depreciation, depletion and amortization 19,033 14,339
Deferred taxes (420) (610)
Undistributed minority interest -- 1,315
Other - net 53 2,384
Changes in operating assets and liabilities
Notes and accounts receivable 13,580 (15,065)
Inventories and prepaid expenses (57,016) 12,872
Accounts payable and accrued liabilities 23,213 22,658
Real estate and investments 1,998 341
--------- --------
Net cash provided by operations 27,507 63,132
INVESTING ACTIVITIES
Capital expenditures - Virginia steel facility (94,852) (6,957)
Capital expenditures - other (30,063) (43,107)
Proceeds from disposition of assets 604 302
Other - net (161) 33
--------- --------
Net cash used by investing (124,472) (49,729)
FINANCING ACTIVITIES
Proceeds of long-term borrowing 12,000 3,500
Net proceeds from issuance of subsidiary
preferred securities 193,599 --
Debt retirements (94,877) (18,147)
Purchase of treasury shares (154) --
Common dividends paid (1,591) (1,569)
Other - net (455) (333)
--------- --------
Net cash provided (used) by financing 108,522 (16,549)
--------- --------
Increase (decrease) in cash 11,557 (3,146)
Cash at beginning of period 16,718 19,834
--------- --------
Cash at end of period $ 28,275 $ 16,688
========= ========
See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Texas Industries, Inc. ("TXI" or the "Company"), is a leading supplier of
construction materials through two business segments: cement, aggregate and
concrete products (the "CAC" segment) and structural steel and specialty bar
products (the "Steel" segment). Through the CAC segment, the Company produces
and sells cement, stone, sand and gravel, expanded shale and clay aggregate and
concrete products from facilities concentrated in Texas, Louisiana, and
California, with several products marketed throughout the United States.
Through its Steel segment, the Company produces and sells structural steel,
specialty bar products, merchant bar-quality rounds, reinforcing bar and
channels for markets in North America and, under certain market conditions,
Europe and Asia.
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,
1998, are not necessarily indicative of the results that may be expected for the
year ended May 31, 1999. 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, 1998.
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 Steel Company ("Chaparral"), which
was acquired by the Company on December 31, 1997. Certain amounts in the prior
period financial statements have been reclassified to conform to the current
period presentation.
Cash Equivalents. For cash flow purposes, temporary investments which have
maturities of less than 90 days when purchased are considered cash equivalents.
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.
Intangible Assets. Goodwill and other intangibles is presented net of
accumulated amortization of $23.7 million at August 31, 1998 and $22.2 million
at May 31, 1998. Goodwill resulting from the acquisitions of Chaparral Steel
Company and Riverside Cement Company, totaling $144.6 million at August 31, 1998
and $145.6 million at May 31, 1998 (net of accumulated amortization), is being
amortized currently on a straight-line basis over 40-year periods. 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.
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.
Earnings Per Share ("EPS"). The Company adopted Statement of Financial
Accounting Standards No.128, "Earnings per Share" ("SFAS No. 128") for its
fiscal quarter ended February 28, 1998. SFAS No. 128 establishes new standards
for computing and presenting Basic and Diluted EPS and requires the restatement
of prior period EPS data.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued
Basic EPS is computed by adjusting net income for the amortization of additional
goodwill in connection with a contingent payment for the acquisition of
Chaparral, then dividing by the weighted average number of common shares
outstanding during the period including certain contingently issuable shares.
Diluted EPS also adjusts net income for the net dividends on preferred
securities of subsidiary and the outstanding shares for the dilutive effect of
the preferred securities, stock options and awards.
Basic and Diluted EPS are calculated as follows:
August 31,
----------------------------------------------------------
In thousands except per share 1998 1997
----------------------------------------------------------
Earnings:
Net income $27,286 $24,710
Contingent price amortization 58 58
------- -------
Basic earnings 27,344 24,768
Net dividends on preferred securities 1,708 --
------- -------
Diluted earnings $29,052 $24,768
======= =======
Shares:
Weighted-average shares outstanding 21,207 20,911
Contingently issuable shares 114 90
------- -------
Basic weighted-average shares 21,321 21,001
Stock option and award dilution 615 428
Preferred securities 2,889 --
------- -------
Diluted weighted-average shares 24,825 21,429
======= =======
Basic earnings per share $ 1.28 $ 1.18
======= =======
Diluted earnings per share $ 1.17 $ 1.16
======= =======
WORKING CAPITAL
Working capital totaled $259.6 million at August 31, 1998, compared to $227.0
million at May 31, 1998.
Notes and accounts receivable of $137.7 million at August and $151.2 million at
May are presented net of allowances for doubtful receivables of $3.7 million at
August and $3.4 million at May.
Inventories are summarized as follows:
----------------------------------------------------------
In thousands August May
----------------------------------------------------------
Finished products $ 88,516 $ 59,290
Work in process 36,530 34,043
Raw materials and supplies 79,909 68,677
-------- --------
$204,955 $162,010
======== ========
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 $15.7 million at August and May.
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LONG-TERM DEBT
Long-term debt is comprised of the following:
----------------------------------------------------------------
In thousands August May
----------------------------------------------------------------
Revolving credit facility maturing in
2002, interest rate 8.5% $ -- $ 82,750
Senior notes due through 2017, interest
rates average 7.28% 200,000 200,000
Senior notes due through 2008, interest
rates average 7.28% 75,000 75,000
Senior notes due through 2004, interest
rates average 10.2% 48,000 48,000
Senior note due through 1999, interest
rate 14.2% 4,091 4,091
Pollution control bonds, due through 2007,
interest rate 6.38% (75% of prime) 7,255 7,255
Other, maturing through 2005, interest rates
from 8% to 10% 1,916 2,035
-------- --------
336,262 419,131
Less current maturities 13,331 13,382
-------- --------
$322,931 $405,749
======== ========
Annual maturities of long-term debt for each of the five succeeding years are
$13.3, $9.0, $8.9, $8.8 and $8.7 million.
The Company has available a bank-financed $350 million long-term revolving
credit facility of which $14.4 million has been utilized to support letters of
credit. The Company may select at the time of borrowing an interest rate at
either prime or the applicable margin above LIBOR. Commitment fees at a current
annual rate of .125% are paid on the unused portion of this facility.
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 of
earnings before interest, taxes, depreciation and amortization to fixed charges.
The Company is in compliance with all loan covenant restrictions.
The amount of interest paid for the three-month periods presented was $700,000
in 1998 and $1.4 million in 1997. Interest capitalized totaled $3.5 million and
$359,000 in the 1998 and 1997 periods, respectively.
PREFERRED SECURITIES OF SUBSIDIARY
On June 5, 1998, TXI Capital Trust I (the "Trust"), a Delaware business trust
wholly owned by the Company, issued 4,000,000 of its 5.5% Shared Preference
Redeemable Securities ("Preferred Securities") to the public for gross proceeds
of $200 million. The combined proceeds from the issuance of the Preferred
Securities and the issuance to the Company of the common securities of the Trust
were invested by the Trust in $206.2 million aggregate principal amount of 5.5%
convertible subordinated debentures due June 30, 2028 (the "Debentures") issued
by the Company. The Debentures are the sole assets of the Trust.
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PREFERRED SECURITIES OF SUBSIDIARY-Continued
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of $2.75 per Preferred Security (equivalent to a
rate of 5.5% per annum of the stated liquidation amount of $50 per Preferred
Security). The Company has guaranteed, on a subordinated basis, distributions
and other payments due on the Preferred Securities, to the extent the Trust has
funds available therefor and subject to certain other limitations (the
"Guarantee"). The Guarantee, when taken together with the obligations of the
Company under the Debentures, the Indenture pursuant to which the Debentures
were issued, and the Amended and Restated Trust Agreement of the Trust
(including its obligations to pay costs, fees, expenses, debts and other
obligations of the Trust [other than with respect to the Preferred Securities
and the common securities of the Trust]), provide a full and unconditional
guarantee of amounts due on the Preferred Securities.
The Debentures are redeemable for cash, at the option of the Company, in whole
or in part, on or after June 30, 2001, or under certain circumstances relating
to federal income tax matters, at par, plus accrued and unpaid interest. Upon
any redemption of the Debentures, a like aggregate liquidation amount of
Preferred Securities will be redeemed. The Preferred Securities do not have a
stated maturity date, although they are subject to mandatory redemption upon
maturity of the Debentures on June 30, 2028, or upon earlier redemption.
Each Preferred Security is convertible at any time prior to the close of
business on June 30, 2028, at the option of the holder into shares of the
Company's common stock at a conversion rate of .72218 shares of the Company's
common stock for each Preferred Security (equivalent to a conversion price of
$69.235 per share of TXI Common Stock).
SHAREHOLDERS' EQUITY
Common stock consists of:
-------------------------------------------------------------
In thousands August May
-------------------------------------------------------------
Shares authorized 40,000 40,000
Shares outstanding at end of period 21,219 21,188
Diluted average common shares outstanding 24,825 21,819
Shares held in treasury 3,848 3,879
Shares reserved for stock options and other 3,859 3,880
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, 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.
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STOCK OPTION PLAN
The Company's stock option plan provides 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 year after date of grant and expire
ten years later. A summary of option transactions for the three-month period
ended August 31, 1998, follows:
---------------------------------------------------------------------------
Weighted Average
Shares Under Option Option Price
---------------------------------------------------------------------------
Outstanding at June 1 1,816,963 $27.51
Granted 60,000 50.56
Exercised (30,210) 13.10
Cancelled (1,400) 37.50
--------- ------
Outstanding at August 31 1,845,353 $28.48
========= ======
At August 31, 1998, there were 542,343 shares exercisable and 1,859,930 shares
available for future grants. Outstanding options expire on various dates to July
15, 2008.
INCOME TAXES
Federal income taxes for the interim periods ended August 31, 1998 and 1997,
have been included in the accompanying financial statements on the basis of an
estimated annual rate. The estimated annualized tax rate is 33.6% for 1998
compared with 33.1% for 1997. 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 state income tax expense. The Company made income tax payments of $5.2
million and $1.2 million in the three-month periods ended August 31, 1998 and
1997, 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.
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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, 1998, and the related
condensed consolidated statements of income and cash flows for the three-month
periods ended August 31, 1998 and 1997. 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, 1998, 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 15, 1998, 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, 1998, 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, 1998
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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, 1998 to the three-month period ended August 31, 1997.
GENERAL
The Company is a leading supplier of construction materials through two business
segments: cement, aggregate and concrete products (the "CAC" segment); and
structural steel and specialty bar products (the "Steel" segment). Through the
CAC segment, the Company produces and sells cement, stone, sand and gravel,
expanded shale and clay aggregate and concrete products. Through its Steel
segment, the Company produces and sells structural steel, specialty bar
products, merchant bar-quality rounds, reinforcing bar and channels.
Corporate resources include administration, financial, legal, environmental,
personnel and real estate activities which are not allocated to operations and
are excluded from operating profit.
RESULTS OF OPERATIONS
Net Sales. Consolidated net sales for the August 1998 quarter were $299.1
million compared to $297.1 million for the prior year period. CAC sales at
$168.9 million were up 43% from the prior year. Cement sales increased $33.1
million due primarily to the Company's expansion into the California cement
market through the January 1998 acquisition of Riverside Cement Company.
Riverside's shipments were up 10% from the May 1998 quarter with average prices
up 3%. Sales from the Company's Texas plants increased 3% from the prior year
period. Lower cement inventory and production in the current period reduced
shipments by 7%, which were offset by 11% higher average prices. Ready-mix
sales increased $13.0 million over the prior year quarter due to a 14% increase
in volume and a 10% higher average selling price. Aggregate shipments increased
14% with higher average prices. Steel sales at $130.2 million were down 27%
from the prior year. Realized prices increased 6% with shipments declining 33%.
Strong nonresidential building activity has continued to sustain demand for
structural steel products in North America, however, lower than anticipated
production and competition from imported structural products reduced shipments.
Shipments in the 1997 quarter also benefited from an almost 100,000 ton higher
structural product inventory. Bar mill prices increased 3% over the prior year
quarter with shipments 19% lower.
Business Segments
Three months ended
August 31,
--------------------------------------------------------
In thousands 1998 1997
--------------------------------------------------------
NET SALES
Cement $ 76,144 $ 43,027
Ready-mix 65,718 52,673
Stone, sand & gravel 27,353 23,274
Other products 28,634 26,902
Interplant (28,972) (27,822)
------- -------
TOTAL CAC 168,877 118,054
Bar mill 36,970 44,198
Structural mills 89,308 132,537
Transportation and other 3,953 2,271
------- -------
TOTAL STEEL 130,231 179,006
------- -------
TOTAL NET SALES $ 299,108 $ 297,060
======= =======
UNITS SHIPPED
Cement (tons) 1,001 657
Ready-mix (cubic yards) 1,120 986
Stone, sand & gravel (tons) 5,314 4,659
Structural mills (tons) 212 341
Bar mills (tons) 103 127
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Business Segments-Continued
Three months ended
August 31,
-------------------------------------------------------------------
In thousands 1998 1997
-------------------------------------------------------------------
CAC OPERATIONS
Gross profit $63,702 $45,549
Less: Depreciation, depletion &
amortization 8,955 5,925
Selling, general & administrative 9,364 7,657
Other income (540) (760)
------- -------
OPERATING PROFIT 45,923 32,727
STEEL OPERATIONS
Gross profit 24,702 32,468
Less: Depreciation & amortization 9,827 8,182
Selling, general & administrative 8,379 8,684
Other income (500) (417)
------- -------
OPERATING PROFIT 6,996 16,019
------- -------
TOTAL OPERATING PROFIT 52,919 48,746
CORPORATE RESOURCES
Other income 1,384 790
Less: Depreciation & amortization 251 232
Selling, general & administrative 6,028 5,708
------- -------
(4,895) (5,150)
INTEREST EXPENSE (4,291) (4,373)
------- -------
INCOME BEFORE TAXES & OTHER ITEMS $43,733 $39,223
======= =======
Operating Costs. Consolidated cost of products sold including depreciation,
depletion and amortization was $228.4 million, a decrease of $4.0 million from
the prior year quarter. CAC costs were $113.1 million, an increase of $35.3
million due primarily to the addition of the Riverside cement plants, higher per
unit cement manufacturing costs at the Company's Texas cement plants and
increased ready-mix and aggregate shipments. Steel costs of $115.3 million,
decreased $39.4 million due primarily to reduced shipments.
CAC selling, general and administrative expenses including depreciation and
amortization was $10.4 million, an increase of $2.1 million over the prior year
quarter due primarily to the expanded cement operations and higher incentive
accruals. Steel expenses at $8.4 million were $300,000 below the prior year
period due to lower incentive accruals offsetting higher selling expense.
Operating Profit. Operating profit of $52.9 million in the August 1998 quarter
was $4.2 million higher than the prior year quarter. CAC operating profit was
up 40% over the prior year quarter on increased volumes. The Riverside
acquisition contributed 27% of the increase. Lower production at the Texas
cement plants reduced profit margins during the quarter. Steel operating profit
of $7.0 million was $9.0 million below the prior year period due to reduced
shipments.
Corporate Resources. Selling, general and administrative expenses including
depreciation and amortization was $6.3 million, an increase of $300,000 over the
prior year quarter as higher incentive accruals were offset by lower retirement
accruals. Other income increased $600,000 in the current period due to
increased interest income offsetting lower income from the Company's real estate
operations.
Interest Expense. Interest expense was $4.3 million in the 1998 quarter, net of
$3.5 million of capitalized interest. Total interest incurred was $3.0 million
higher than in the 1997 period due to the increased borrowing in the last fiscal
year.
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LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $27.5 million, a decrease of $35.6
million from the prior year period due primarily to changes in working capital
items which were partially offset by higher net income and depreciation,
depletion and amortization expense. During the 1998 period, CAC sales were up
7% increasing receivables $5.1 million. Steel shipments declined 27% from the
May quarter reducing receivables $19.2 million and increasing inventories $41.8
million. Accounts payable and accrued expenses increased $23.2 million due in
part to increased income tax and interest accruals. During the 1997 period,
receivables increased $15.1 million due to 7% higher net sales. Inventories
declined $19.1 million on increased shipments. Accounts payable and accrued
expenses increased $22.7 million due in part to increased income tax accruals
and summer shutdown spending.
Net cash used by investing activities was $124.5 million compared to $49.7
million during the prior year period, consisting principally of capital
expenditure items. Historically, capital expenditures have consisted of normal
replacement and technological upgrades of existing equipment and expansion of
the Company's operations. Expenditures for these activities were $30.0 million
in the current period. The fiscal year 1999 capital expenditure budget is
estimated at $90 million, 44% below fiscal year 1998 expenditures.
Additionally, capital expenditures of $187.5 million including $94.9 million in
the current period have been incurred for the construction of the Company's
Virginia steel facility. Production at this facility is scheduled to begin in
1999, with total costs for the site, utilities, equipment and installation
estimated to be $450 million. The Company has filed for a permit to expand the
production of its Midlothian, Texas cement plant from 1.3 to 2.8 million tons
per year. The project would require a capital commitment of approximately $250
million.
Net cash provided by financing activities was $108.5 million, compared to $16.5
million used during the prior year period. On June 5, 1998, TXI Capital Trust
I, a Delaware business trust wholly owned by the Company, issued 4,000,000 of
its 5.5% Shared Preference Redeemable Securities ("Preferred Securities") to the
public. Holders of the Preferred Securities are entitled to receive cumulative
cash distributions at an annual rate of $2.75 per Preferred Security accruing
from the date of issuance and payable quarterly in arrears commencing September
30, 1998. A portion of the net proceeds of $193.6 million was used to repay the
outstanding borrowings under the Company's $350 million revolving credit
facility. At August 31, 1998, the Company had available $335.6 million under the
credit facility. The Company's quarterly cash dividend at $.075 per common
share remained unchanged from the prior year period.
The Company generally finances its major capital expansion projects with long-
term borrowing. Maintenance capital expenditures and working capital are funded
by cash flow from operations. The Company expects cash from operations and
borrowings under its revolving credit facility to be sufficient to provide funds
for capital expenditure commitments, scheduled debt repayments and working
capital needs during the next two years.
OTHER ITEMS
Based on an assessment by the Company of its operating, financial and management
information systems, the Company determined that modification or upgrading
certain equipment and software would be necessary to address Year 2000 issues.
The Company began converting its computerized business systems in 1992 in order
to upgrade system capabilities and utilize current hardware and software
technology. To date, most systems have been converted. Conversion of the
remaining systems is expected before December 1999. The Company is currently
addressing the manufacturing process control, man-machine-interface, and other
plant and operational systems and expects to resolve all material Year 2000
issues before December 1999.
In addition, the Company has contacted its critical suppliers and others to
determine the extent to which the Company would be vulnerable to those third
parties' failure to remediate their own Year 2000 issues. The Company has
received written assurances from the most critical suppliers and has not been
informed of any material risks associated with other entities. There can be no
guarantee that the systems of these critical suppliers or other entities on
which the Company relies will be timely converted and would not have an adverse
effect on the Company's systems or operations.
The Company believes that neither the cost of its planned upgrade and
modification program nor a failure to timely complete such program will have a
material impact on the operations or financial condition of the Company.
-14-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
(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, 1998 Consolidated Financial Statements and is
qualified in its entirety by reference to such financial statements.
The remaining exhibits have been omitted because they are not applicable or the
information required therein is included elsewhere in the financial statements
or notes thereto.
The Registrant did not file any reports on Form 8-K during the three-month
period ended August 31, 1998.
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 12, 1998 /s/ Richard M. Fowler
- ---------------- ----------------------
Richard M. Fowler
Vice President & Chief Financial Officer
October 12, 1998 /s/ James R. McCraw
- ---------------- --------------------
James R. McCraw
Vice President - Accounting/Information Services
-15-
<PAGE>
INDEX TO EXHIBITS
Exhibits Page
15. Letter re: Unaudited Interim Financial Information.......................17
27. Financial Data Schedule..................................................**
** Electronically filed only.
-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, 1998, 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, 1998.
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 12, 1998
Dallas, Texas
-17-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED AUGUST 31, 1998 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-31-1999
<PERIOD-END> AUG-31-1998
<CASH> 28,278
<SECURITIES> 0
<RECEIVABLES> 141,314
<ALLOWANCES> 3,661
<INVENTORY> 204,955
<CURRENT-ASSETS> 427,000
<PP&E> 1,384,328
<DEPRECIATION> 661,596
<TOTAL-ASSETS> 1,352,105
<CURRENT-LIABILITIES> 167,393
<BONDS> 322,931
200,000
0
<COMMON> 25,067
<OTHER-SE> 554,365
<TOTAL-LIABILITY-AND-EQUITY> 1,352,105
<SALES> 299,108
<TOTAL-REVENUES> 299,108
<CGS> 228,444
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<OTHER-EXPENSES> 0
<LOSS-PROVISION> 257
<INTEREST-EXPENSE> 4,291
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<INCOME-TAX> 14,739
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