<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED).
For the fiscal year ended May 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED).
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 (I.R.S. Employer Identification No.)
incorporation or organization)
1341 West Mockingbird Lane, #700W, Dallas, Texas 75247-6913
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 647-6700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ----------------------------- ----------------------------------------
Common Stock, Par Value $1.00 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
The aggregate market value of the Registrant's Common Stock, $1.00 par value,
held by non-affiliates of the Registrant as of June 30, 1998 was $1,077,996,256.
As of August 24, 1998, 21,219,286 shares of the Registrant's Common Stock, $1.00
par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Registrant's definitive proxy statement for the annual meeting
of shareholders to be held October 20, 1998, are incorporated by reference into
Part III.
<PAGE>
TABLE OF CONTENTS
Page
PART I
Item 1. Business........................................................ 1
Item 2. Properties...................................................... 5
Item 3. Legal Proceedings............................................... 5
Item 4. Submission of Matters to a Vote of Security Holders............. 6
Item 4A. Executive Officers of the Registrant............................ 6
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters....................................... 8
Item 6. Selected Financial Data......................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 9
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...... 13
Item 8. Financial Statements and Supplementary Data..................... 13
Item 9. Disagreements on Accounting and Financial Disclosures........... 28
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 28
Item 11. Executive Compensation.......................................... 28
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 28
Item 13. Certain Relationships and Related Transactions.................. 28
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 28
<PAGE>
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Texas Industries, Inc. and subsidiaries (unless the context indicates otherwise,
collectively, the "Registrant", the "Company" or "TXI"), is a leading supplier
of construction materials through two business segments: structural steel and
specialty bar products (the "Steel" segment); and cement, aggregate and concrete
products (the "CAC" segment). Through its Steel segment, TXI produces and sells
structural steel, specialty bar products, merchant bar-quality rounds,
reinforcing bar and channels. Through the CAC segment, TXI produces and sells
cement, stone, sand and gravel, expanded shale and clay aggregate and concrete
products. The Company is the largest producer of cement in Texas, a major cement
producer in California and the second largest supplier of structural steel
products in North America. Demand for structural steel, cement, aggregate and
concrete products is primarily driven by construction activity, while specialty
bar products supply the original equipment manufacturers, tool and oil country
goods markets.
Incorporated April 19, 1951, the Registrant began its cement operations in 1960
with the opening of its Midlothian, Texas facility and added its steel
operations in 1975 with the construction of a plant in Midlothian. TXI has
derived significant benefits as a producer of both cement and steel, primarily
in lowering production costs and enhancing productivity through the innovative
recycling of by-products of manufacturing.
On December 31, 1997, the Company acquired Riverside Cement Company, the owner
of a 1.3 million ton per year portland cement plant and a 100,000 ton per year
specialty white cement plant. The acquisition increased TXI's cement capacity
by 60% and opened the California regional cement market to the Company. TXI is
constructing a structural steel facility in Virginia, scheduled to begin
operations in the summer of 1999, which will expand TXI's steel capacity by
approximately two-thirds. On December 31, 1997, the Company acquired the
minority interest in its 85% owned subsidiary, Chaparral Steel Company. In March
1998, TXI filed for a permit to expand its Midlothian, Texas cement plant's
production from 1.3 to 2.8 million tons per year.
(b) Financial Information about Industry Segments
Financial information for the Registrant's two industry segments, is presented
in Part II, Item 7 "Management's Discussion and Analysis of Financial Condition
and Results of Operations" on pages 10 and 11, incorporated herein by reference.
(c) Narrative Description of Business
STEEL
The Company's steel facility in Midlothian, Texas follows a market mill concept
which entails the low cost production of a wide variety of products ranging from
reinforcing bar and specialty bar products to large-sized structural beams. The
facility has two electric arc furnaces with continuous casters which feed melted
steel to a bar mill, a structural mill and a large beam mill which together
produce a broader array of steel products than a traditional mini-mill.
Finished (rolled) products produced include beams up to twenty-four inches wide,
merchant bar-quality rounds, special bar quality rounds, reinforcing bar and
channels.
The rated annual capacity of the Texas operating facilities are as follows:
Annual Rated Productive Approximate
Capacity (Tons) Facility Square Footage
----------------------- -----------------------
Melting 1,800,000 265,000
Rolling 1,900,000 560,000
The bar and structural mills produced approximately 1.6 million tons of finished
products during each of the last three years.
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Recycled steel is the primary raw material, with shredded steel representing 45
percent of the raw material mix. A major portion of the shredded steel
requirements is produced by a shredder operation at the steel mill. The shredded
material is primarily composed of crushed auto bodies purchased on the open
market. Another grade of recycled steel, #1 Heavy, representing 27 percent of
the raw material requirements is also purchased on the open market. The
purchase price of recycled steel is subject to market forces largely beyond the
Company's control. The supply of recycled steel is expected to be adequate to
meet future requirements.
The steel mill consumes large amounts of electricity and natural gas.
Electricity is currently obtained from a local electric utility under an
interruptible supply contract with price adjustments which reflect increases or
decreases in the utility's fuel costs. Natural gas is obtained from a local gas
utility under a supply contract. The Company believes that adequate supplies of
both electricity and natural gas are readily available.
The Company's steel products are marketed throughout the United States and to a
limited extent in Canada and Mexico, and under certain market conditions,
Western Europe and Asia. Sales are primarily to steel service centers and steel
fabricators for use in the construction industry, as well as, to cold finishers,
forgers and original equipment manufacturers for use in the railroad, defense,
automotive, mobile home and energy industries. The Company does not place heavy
reliance on franchises, licenses or concessions. At present, TXI has
approximately 700 customers, none of which accounted for more than ten percent
of the Steel segment's sales in 1998. Sales to affiliates are minimal. Orders
are generally filled within 45 days and are cancelable. Delivery of finished
products is accomplished by common-carrier, customer-owned trucks, rail or
barge.
The Company competes with steel producers, including foreign producers, on the
basis of price, quality and service. Certain of the foreign and domestic
competitors, including both large integrated steel producers and mini-mills,
have substantially greater assets and larger sales organizations than TXI.
Intense sales competition exists for substantially all of the Steel segment's
products.
CEMENT, AGGREGATE AND CONCRETE
The CAC business segment includes the manufacture and sale of cement,
aggregates, ready-mix concrete, concrete pipe, block and brick. Production and
distribution facilities are concentrated primarily in Texas, Louisiana and
California, with markets extending into contiguous states. During 1998, the
Company acquired cement facilities in California, expanded shale and clay
aggregate facilities in Colorado and additional ready-mix plants in Texas and
Louisiana. In addition, TXI has certain patented and unpatented mining claims
in southern California which contain deposits of limestone. The Company does
not place heavy reliance on patents, franchises, licenses or concessions related
to its CAC operations.
CEMENT
TXI's principal product is portland cement. The Company also produces specialty
cements such as white, masonry, adobe and oil well.
Cement production facilities are located at four sites in Texas and California:
Midlothian, Texas, south of Dallas/Fort Worth, the largest cement plant in
Texas; Hunter, Texas, south of Austin; and Oro Grande and Crestmore, California,
both near Los Angeles. Except for the Crestmore facility, the limestone
reserves used as the primary raw material are located on fee-owned property
adjacent to each of the plants. Raw material for the Crestmore facility is
purchased from outside suppliers. Information regarding each of the Company's
facilities is as follows:
<TABLE>
<CAPTION>
Annual Rated Productive Manufacturing Service Estimated Minimum
Plant Capacity - (Tons of Clinker) Process Date Reserves - Years
----- ---------------------------- ------- ---- ---------------
<S> <C> <C> <C> <C>
Midlothian, TX 1,300,000 Wet 1960 100
Hunter, TX 800,000 Dry 1979 100
Oro Grande, CA 1,300,000 Dry 1948 90
Crestmore, CA 100,000 Dry 1962 N/A
</TABLE>
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The Company uses its patented CemStar process in both of its Texas facilities,
which has increased combined annual production by approximately 10%. The
Company intends to add this process to its Oro Grande facility in the near
future. The CemStar process adds "slag," a co-product of steel-making, into a
cement kiln along with the regular raw material feed. The slag serves to
increase the production of clinker which is then ground to make cement. The
primary fuel source for all of the Company's facilities is coal; however, the
Company displaces approximately 35% of its coal needs at its Midlothian plant
and approximately 10% of its coal needs at its Hunter plant by utilizing
alternative fuels.
The Company produced approximately 2.7 million tons of finished cement in 1998,
2.1 million tons in 1997 and 2.2 million tons in 1996. Total annual shipments
of finished cement were approximately 2.9 million tons in 1998, 2.1 million tons
in 1997 and 2.4 million tons in 1996 of which 2.0 million tons in 1998, 1.3
million tons in 1997 and 1.5 million tons in 1996 were shipped to outside trade
customers.
The Company markets its products throughout the southwestern United States. Its
principal marketing area includes the states of Texas, Louisiana, Oklahoma,
California, Nevada, Arizona and Utah. Sales offices are maintained throughout
the marketing area and sales are made primarily to numerous customers in the
construction industry, none of which accounted for more than ten percent of the
trade sales volume in 1998.
The Company distributes cement from its plants by rail or truck to eight
distribution terminals located throughout its marketing area.
The cement industry is highly competitive with suppliers differentiating
themselves based on price, service and quality.
AGGREGATE, CONCRETE AND OTHER PRODUCTS
TXI's aggregate business, which includes sand, gravel, crushed limestone and
expanded shale and clay, is conducted from facilities primarily serving the
Dallas/Fort Worth, Austin and Houston areas in Texas, the Alexandria, New
Orleans, Baton Rouge, and Monroe areas in Louisiana, Oakland/San Francisco and
Los Angeles areas in California and the Denver area in Colorado. The following
table summarizes certain information about the Registrant's aggregate production
facilities:
<TABLE>
<CAPTION>
Estimated Annual Estimated
Number of Productive Minimum
Type of Facility and General Location Plants Capacity Reserves - Years
- ------------------------------------- --------- ---------------- ----------------
<S> <C> <C> <C>
Crushed Limestone
North Central Texas 1 6.5 million tons 28
Sand & Gravel
North Central Texas 3 3.0 million tons 11
Central Texas 2 2.4 million tons 14
Louisiana 10 7.4 million tons 24
South Central Oklahoma 1 1.2 million tons 6
Colorado 1 .5 million tons 25
Expanded Shale & Clay
North Central & South Texas 2 1.2 million cu. yds. 25
California 2 .6 million cu. yds. 25
Colorado 1 .5 million cu. yds. 25
</TABLE>
Reserves identified with the facilities shown above and additional reserves
available to support future plant sites are contained on approximately 38,000
acres of land, of which approximately 21,000 acres are owned in fee and the
remainder leased. The expanded shale and clay plants operated at 83 percent of
capacity for 1998 with sales of approximately 1.7 million cubic yards.
Production for the remaining aggregate facilities was 73 percent of practical
capacity and sales for the year totaled 15.5 million tons, of which
approximately 11.0 million tons were shipped to outside trade customers. In
addition, the Registrant owns and operates three industrial sand plants and an
aggregate blending facility.
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<PAGE>
The cost of transportation limits the marketing of these various aggregates to
the areas relatively close to the plant sites. Consequently, sales of these
products are related to the level of construction activity near these plants.
These products are marketed by the Company's sales organization located in the
areas served by the plants and are sold to numerous customers, no one of which
would be considered significant to the Company's business. The distribution of
these products is provided to trade customers principally by contract or
customer-owned haulers, and a limited amount of these products is distributed by
rail for affiliated usage.
The Company's ready-mix concrete operations are situated in three areas in Texas
(Dallas/Fort Worth/Denton, Houston/Beaumont and East Texas), in north and
central Louisiana, and at one location in southern Arkansas. The following
table summarizes various information concerning these facilities:
<TABLE>
<CAPTION>
Location Number of Plants Number of Trucks
-------- ---------------- ----------------
<S> <C> <C>
Texas 36 438
Louisiana 19 149
Arkansas 1 3
</TABLE>
The plants listed above are located on sites owned or leased by the Company.
TXI manufactures and supplies a substantial amount of the cement and aggregates
used by the ready-mix plants with the remainder being purchased from outside
suppliers. Ready-mix concrete is sold to various contractors in the
construction industry, no one of which would be considered significant to the
Company's business.
The remainder of the major products manufactured and marketed by the Company
within the concrete products segment are summarized by location below:
Location Products Produced/Sold
-------- ----------------------
Dallas/Fort Worth, Texas Sakrete and related products
Austin, Texas Sakrete and related products
Houston, Texas Sakrete and related products
Baton Rouge, Louisiana Concrete pipe
Northeast and Central Louisiana Concrete block and pipe
Northwest Louisiana Concrete block and pipe
Sakrete and related products
Bridge Spans
Clay Brick
Athens, Texas Clay Brick
Mineral Wells, Texas Clay Brick
The plant sites for the above products (except for two that are leased) are
owned by the Company. The products are marketed by the Company's sales force in
each of these locations, and are primarily delivered by trucks owned by the
Company. Because the cost of delivery is significant to the overall cost of
most of these products, the market area is generally restricted to within
approximately one hundred miles of the plant locations. These products are sold
to various contractors, owners and distributors, none of which would be
considered significant to the Company's business.
In most of TXI's principal markets for concrete products, the Company competes
vigorously with at least three other vertically integrated concrete companies.
The Company believes that it is a significant participant in each of the Texas
and Louisiana concrete products markets. The principal methods of competition
in concrete products markets are quality and service at competitive prices.
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<PAGE>
ENVIRONMENTAL MATTERS
The operations of the Company are subject to various federal and state
environmental laws and regulations. Under these laws the U. S. Environmental
Protection Agency ("EPA") and agencies of state government have the authority to
promulgate regulations which could result in substantial expenditures for
pollution control and solid waste treatment. Three major areas regulated by
these authorities are air quality, water quality and hazardous waste management.
Pursuant to these laws and regulations, emission sources at the Company's
facilities are regulated by a combination of permit limitations and emission
standards of statewide application, and the Company believes that it is in
substantial compliance with its permit limitations and applicable laws and
regulations.
The Company's steel mill generates, in the same manner as other steel mills in
the industry, electric arc furnace ("EAF") dust that contains lead, chromium and
cadmium. The EPA has listed this EAF dust, which TXI collects in baghouses, as
a hazardous waste. The Company has contracts with reclamation facilities in the
United States and Mexico pursuant to which such facilities receive the EAF dust
generated by the steel mill and recover the metals from the dust for reuse, thus
rendering the dust non-hazardous. In addition, the Company is continually
investigating alternative reclamation technologies and has implemented processes
for diminishing the amount of EAF dust generated.
The Company intends to comply with all legal requirements regarding the
environment but since many of these requirements are not fixed, presently
determinable, or are likely to be affected by future legislation or rule making
by government agencies, it is not possible to accurately predict the aggregate
future costs or benefits of compliance and their effect on the Company's
operations, future net income or financial condition. 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 or provide additional benefits to the Company.
OTHER ITEMS
TXI provides products for the construction industry. It is not uncommon for the
Company to report a loss from its cement, aggregate and concrete operations in
the quarter ending February due to adverse weather conditions. Steel results in
the quarters ending August and February are affected by the normal, scheduled
two-week summer and one-week winter shut-downs to refurbish the production
facilities. The dollar amount of the Company's backlog of orders is not
considered material to an understanding of its business.
TXI has approximately 4,100 employees, 1,300 employed in Steel operations and
the balance in cement, aggregate and concrete.
The Company is involved in the development of its surplus real estate and real
estate acquired for development of high quality industrial, office and multi-use
parks in the metropolitan areas of Dallas/Fort Worth and Houston, Texas and
Richmond, Virginia.
ITEM 2. PROPERTIES
The information required by this item is included in the answer to Item 1.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings against the Registrant and subsidiaries
which in management's judgment (based upon the opinion of counsel) would have a
material adverse effect on the consolidated financial position of the
Registrant.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Information on executive officers of the Registrant is presented below:
<TABLE>
<CAPTION>
Positions with Registrant, Other
Name Age Employment During Last Five (5) Years
---- --- -------------------------------------
<S> <C> <C>
Robert D. Rogers 62 President and Chief Executive Officer and Director
Kenneth R. Allen 41 Vice President (since 1996) and Treasurer
Dennis E. Beach 59 Vice President-Administration (since October 21, 1997)
Vice President-Administration, Chaparral Steel Company
Barry M. Bone 40 Vice President-Real Estate (since 1995)
Director of Corporate Real Estate (1993 to 1995)
President, Brookhollow Corporation
Melvin G. Brekhus 49 Executive Vice President and Chief Operating Officer,
Cement, Aggregate and Concrete (since July 15, 1998)
Vice President-Cement (1995-1998)
Vice President-Cement Production (1993 to 1995)
Larry L. Clark 54 Vice President-Controller (since October 21, 1997)
Vice President-Controller, Chaparral Steel Company
Assistant Treasurer, Chaparral Steel Company (1993-1998)
Roman J. Figueroa 52 Vice President-Aggregates
Carlos E. Fonts 58 Vice President-Development (since 1996)
Manager Latin America, Alex Brown & Sons (1995)
Fonts & Associates (1993 to 1995)
Gordon E. Forward 62 Vice Chairman of the Board (since July 15, 1998)
President and Chief Executive Officer, Chaparral Steel
Company (1993-1998)
David A. Fournie 50 Vice President-Structural Products (since October 21, 1997)
Vice President-Structural Products Business Unit, Chaparral
Steel Company (1995-1998)
Vice President of Operations, Chaparral Steel Company (1993-1995)
Richard M. Fowler 55 Vice President-Finance and Chief Financial Officer
H. Duff Hunt, III 52 Vice President-Recycled Products (since October 21, 1997)
Vice President-Recycled Products Business Unit,
Chaparral Steel Company (1995-1998)
General Manager Operations-Melt Shop, Chaparral Steel
Company (1993-1995)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Positions with Registrant, Other
Name Age Employment During Last Five (5) Years
---- --- -------------------------------------
<S> <C> <C>
Richard T. Jaffre 55 Vice President-Raw Materials (since October 21, 1997)
Vice President-Raw Materials/Transportation, Chaparral Steel
Company (1993-1998)
James R. McCraw 54 Vice President-Accounting/Information Services
(since October 21, 1997)
Vice President-Controller (1993 to 1997)
Robert C. Moore 64 Vice President-General Counsel and Secretary
Libor F. Rostik 64 Vice President-Technology and Development
(since October 21, 1997)
Vice President-Engineering, Chaparral Steel Company (1993-1998)
Tommy A. Valenta 49 Executive Vice President and Chief Operating Officer,
Steel (since July 15, 1998)
Vice President-Concrete (1995 to 1998)
Vice President-North Texas Concrete/Cement Marketing
(1993 to 1995)
Peter H. Wright 56 Vice President-Bar Products (since October 21, 1997)
Vice President-Bar Products Business Unit, Chaparral Steel
Company (1995-1998)
Vice President-Quality Control and SBQ Sales, Chaparrel Steel Company
(1993-1995)
</TABLE>
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The shares of common stock, $1 par value, of the Registrant are traded on the
New York Stock Exchange (ticker symbol TXI). At May 31, 1998, the approximate
number of shareholders of common stock of the Registrant was 3,630. Common
stock market prices, dividends and certain other items are presented in the
Notes to Consolidated Financial Statements entitled "Quarterly Financial
Information" on page 27, incorporated herein by reference. The restriction on
the payment of dividends described in the Notes to Consolidated Financial
Statements entitled "Long-term Debt" on page 21 is incorporated herein by
reference. At the January 1997 Board of Directors' meeting, the Directors voted
to declare a two-for-one stock split and increase the quarterly cash dividend
from five cents per share to seven and one-half cents per share.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------
$ In thousands except per share 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net sales $1,196,275 $973,824 $967,449 $830,526 $707,147
Operating profit 195,251 154,535 165,904 112,635 82,130
Net income 102,130 75,474 79,954 48,017 25,751
Return on average common equity 20.5% 17.3% 21.0% 13.8% 8.1%
PER SHARE INFORMATION
Net income (diluted) $ 4.69 $ 3.42 $ 3.53 $ 1.94 $ 1.10
Cash dividends .30 .25 .20 .15 .10
Book value 25.36 20.43 18.52 13.83 13.95
FOR THE YEAR
Cash from operations $ 215,020 $109,899 $127,463 $115,864 $ 51,372
Capital expenditures 440,781 85,188 79,300 48,751 23,305
YEAR END POSITION
Total assets $1,185,831 $847,923 $801,063 $753,055 $749,120
Net working capital 226,968 242,994 219,345 187,603 161,383
Long-term debt 405,749 176,056 160,209 185,274 171,263
Shareholders' equity 553,326 452,811 420,022 343,109 352,671
Long-term debt to total capitalization 42.3% 28.0% 27.6% 35.1% 32.7%
OTHER INFORMATION
Diluted average common shares
outstanding (in 000's)
Number of common shareholders 21,819 22,163 22,682 24,817 25,273
Number of employees 3,630 3,796 4,017 4,445 4,647
Wages, salaries and employee 4,100 3,400 3,000 2,800 2,700
benefits
Common stock prices $ 168,530 $145,953 $141,233 $114,366 $102,853
(high-low)
68 - 23 34 - 20 34 - 17 19 - 14 19 - 10
</TABLE>
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<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is a leading supplier of construction materials through two business
segments: structural steel and specialty bar products (the "Steel" segment);
and cement, aggregate and concrete products (the "CAC" segment). Through its
Steel segment, the Company produces and sells structural steel, specialty bar
products, merchant bar-quality rounds, reinforcing bar and channels. Through
the CAC segment, the Company produces and sells cement, stone, sand and gravel,
expanded shale and clay aggregate and concrete products.
The Company's Texas steel facility follows a market mill concept which entails
producing a wide variety of products utilizing recycled steel obtained from
crushed automobiles and other sources as its principal raw material. TXI
strives to be a low-cost supplier and is able to modify its product mix to
recognize changing market conditions or customer requirements. Steel products
are sold principally to steel service centers, fabricators, cold finishers,
forgers and original equipment manufacturers. The Company distributes primarily
to markets in North America and, under certain market conditions, Europe and
Asia. On December 31, 1997, the Company acquired the minority interest in its
85% owned subsidiary, Chaparral Steel Company. TXI is constructing a structural
steel facility in Virginia, scheduled to begin operations in the summer of 1999,
which will expand TXI's steel capacity by approximately two-thirds.
The Company's CAC facilities are concentrated primarily in Texas, Louisiana and
California with several products marketed throughout the United States. The
Company owns long-term reserves of limestone, the primary raw material for the
production of cement. On December 31, 1997, the Company acquired Riverside
Cement Company, the owner of a 1.3 million ton per year portland cement plant
and a 100,000 ton per year specialty white cement plant. The acquisition opened
the California regional cement market to the Company, increasing TXI's cement
capacity by 60%. In March 1998, the Company filed for a permit to expand the
production of its Midlothian, Texas cement plant from 1.3 to 2.8 million tons
per year.
Both the Steel and CAC businesses require large amounts of capital investment,
energy, labor and maintenance.
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 1998 net sales increased $222.5 million over 1997 to $1,196.3
million.
Steel sales were $705.7 million, an increase of $89.0 million over the prior
year. Structural steel shipments increased 18% and average selling prices
increased 3% in 1998 due to the continued strength in construction activity.
Prices for bar mill products increased 5% over the prior year as a result of an
improved product mix and higher reinforcing bar and specialty bar product
prices. These improvements were offset by a 10% decrease in shipments.
CAC sales, at $490.6 million, were $133.4 million above the prior year. Cement
sales from the Company's Texas operations were up $26.2 million as a result of a
12% increase in shipments. Riverside Cement Company, which was acquired on
December 31, 1997, contributed $40.0 million in sales. The Company's entry into
the California regional market through the acquisition of Riverside contributed
to an overall increase in total cement shipments of 41%. The purchase of
additional ready-mix plants and the return to more favorable weather conditions
resulted in increased ready-mix and stone, sand and gravel sales. Net ready-mix
sales reflect a 32% increase in volume and somewhat higher prices. Stone, sand
and gravel shipments increased 10% during 1998 with prices comparable to the
prior year. Other product sales include expanded shale and clay aggregate sales
of $39.5 million up 48% from 1997 due to increased volumes at the Company's
Texas and California facilities and the purchase of facilities in Colorado.
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<PAGE>
Consolidated 1997 net sales increased $6.4 million over 1996 to $973.8 million.
Steel sales were $616.7 million, up $9 million from 1996. Shipments increased
30,000 tons with average selling prices slightly lower. The demand for
structural products from domestic sources remained strong as prices for
structural mill products were comparable to 1996. Bar product shipments were
16% higher than the prior year with somewhat lower average selling prices.
Special Bar Quality shipments increased 6%. Export sales were level at 4% of
total shipments because of the continued strong domestic market.
CAC sales, at $357.1 million, were below 1996 sales as a result of lower
volumes. Unusually wet weather impacted construction activity in Texas and
Louisiana during much of the year. Cement average trade pricing was up 10% over
1996 with shipments down 12%. Ready-mix net sales reflected 6% higher pricing on
9% lower volume. Overall aggregate prices increased slightly from 1996 with
volumes somewhat lower. Sales of other products reflect the 1996 acquisition of
expanded shale and clay aggregate facilities in California.
<TABLE>
<CAPTION>
Business Segments
Year ended May 31,
-----------------------------------------------------------------------------------------------------------
In thousands 1998 1997 1996
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
Bar mill $ 169,001 $ 178,227 $ 157,130
Structural mills 527,704 435,242 447,115
Transportation service and other 8,984 3,207 3,411
------- ------- -------
TOTAL STEEL 705,689 616,676 607,656
Cement 199,462 133,256 137,773
Ready-mix 202,044 148,861 154,105
Stone, sand & gravel 85,099 76,070 78,198
Other products 101,342 79,783 70,690
Interplant (97,361) (80,822) (80,973)
----------- ----------- ----------
TOTAL CAC 490,586 357,148 359,793
----------- ----------- ----------
TOTAL NET SALES $ 1,196,275 $ 973,824 $ 967,449
=========== =========== ==========
UNITS SHIPPED
Bar mill (tons) 474 525 453
Structural mills (tons) 1,294 1,095 1,137
----------- ----------- ----------
TOTAL STEEL TONS 1,768 1,620 1,590
Cement (tons) 2,945 2,082 2,363
Ready-mix (cubic yards) 3,724 2,813 3,088
Stone, sand & gravel (tons) 17,058 15,501 15,706
STEEL OPERATIONS
Gross profit $ 151,456 $ 132,309 $ 130,050
Less: Depreciation & amortization 33,642 33,153 32,493
Selling, general & administrative 36,250 29,197 26,099
Other income (5,961) (1,528) (4,318)
----------- ----------- ----------
OPERATING PROFIT 87,525 71,487 75,776
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
Business Segments - Continued
Year ended May 31,
-------------------------------------------------------------------------------------------------------
In thousands 1998 1997 1996
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CAC OPERATIONS
Gross profit $ 164,876 $ 125,942 $ 128,246
Less: Depreciation, depletion &
amortization 27,767 19,918 15,964
Selling, general & administrative 31,882 25,616 23,867
Other income (2,499) (2,640) (1,713)
---------- ---------- ----------
OPERATING PROFIT 107,726 83,048 90,128
---------- ---------- ----------
TOTAL OPERATING PROFIT 195,251 154,535 165,904
CORPORATE RESOURCES
Other income 8,821 7,680 7,088
Less: Depreciation & amortization 870 838 823
Selling, general & administrative 23,152 19,270 17,168
---------- ---------- ----------
(15,201) (12,428) (10,903)
INTEREST EXPENSE (20,460) (18,885) (19,960)
---------- ---------- ----------
INCOME BEFORE TAXES &
OTHER ITEMS $ 159,590 $ 123,222 $ 135,041
========== ========== ==========
CAPITAL EXPENDITURES
Steel $ 247,893 $ 33,776 $ 20,630
CAC 191,503 49,327 57,628
Corporate resources 1,385 2,085 1,042
---------- ---------- ----------
$ 440,781 $ 85,188 $ 79,300
========== ========== ==========
IDENTIFIABLE ASSETS
Steel $ 640,431 $ 494,210 $ 475,337
CAC 453,244 274,880 243,081
Corporate resources 92,156 78,833 82,645
---------- ---------- ----------
$1,185,831 $ 847,923 $ 801,063
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
Operating Costs
Consolidated cost of products sold including depreciation, depletion and
amortization was $938.4 million, a $171.4 million increase over 1997. Steel
costs were $587.8 million, an increase of $70.4 million compared to 1997
resulting from increased shipments and higher melt shop unit costs. CAC costs
were $350.6 million, an increase of $101.0 million, as a result of increased
shipments, higher manufacturing costs at the Midlothian cement plant and the
addition of the operating costs of the Riverside cement plants.
The 1997 consolidated cost of products sold was $767.0 million, a $10.3 million
increase over 1996. Steel costs of $517.4 million increased $7.4 million due
primarily to the 30,000 ton increase in shipments as per ton costs were slightly
lower than 1996. While scrap costs were comparable to the prior year, combined
rolling costs decreased. CAC costs of $249.6 million were up $2.9 million in
1997 as higher unit manufacturing cost of cement and ready-mix distribution
costs offset the effect of lower cement volumes.
-11-
<PAGE>
Steel selling, general and administrative expenses including depreciation and
amortization at $36.3 million increased $7.1 million in 1998 due primarily to
higher incentive compensation. CAC expenses at $34.7 million increased $7.6
million in 1998 due primarily to expanded operations and higher incentive
compensation and insurance accruals.
Operating Profit
Operating profit was $195.3 million in 1998, an increase of 26% from the prior
year. Steel profits were $16.0 million higher than 1997, due primarily to
increased structural steel shipments and higher average selling prices for
specialty bar products. CAC profits were $24.7 million higher than 1997 levels
as a result of increased shipments.
Operating profit was $154.5 million in 1997, 7% below the prior year. Steel
profits were $4.3 million lower as improved margins from increased volumes were
offset by higher selling, general and administrative expenses and reduced other
income. CAC profits were $7.1 million below 1996 levels primarily due to
reduced shipments caused by the unusually wet weather experienced during the
year.
Corporate Resources
Selling, general and administrative expenses including depreciation and
amortization, at $24.0 million, increased $3.9 million in 1998 due in part to
increased performance-based compensation and general expenses not allocated to
operations. Other income includes $7.0 million from property sales generated by
the Company's real estate operation, compared to $6.3 million in 1997.
Interest Expense
Interest expense was $20.5 million in 1998, net of $4.6 million of capitalized
interest. The total interest incurred was $6.0 million higher than 1997 due to
increased borrowing during the second half of the year.
LIQUIDITY AND CAPITAL RESOURCES
Net income, at $102.1 million, increased $26.7 million from the prior year as
the continued strong construction activity, favorable weather conditions and
expanded operations contributed to increased shipments. Cash provided by
operations and increased long-term debt funded $440.8 million in capital
expenditures. Shareholders' equity increased $100.5 million. The long-term
debt to total capitalization ratio increased to 42%.
Net cash provided by operating activities during 1998 was $215.0 million, an
increase of $105.1 million over 1997 due to higher net income, increased
depreciation, depletion and amortization expense and changes in working capital
items. Notes and accounts receivable increased $7.7 million due to increased CAC
shipments during May 1998. In 1997, receivables increased $12.6 million as
record steel shipments in May 1997 offset reduced CAC receivables. CAC and
steel inventories declined a total of $13.7 million in 1998 on increased
shipments. In 1997, inventories grew $22.6 million on record steel production
and reduced CAC shipments. Accounts payable and accrued expenses increased
$31.9 million in 1998 due in part to increased trade payables from expanded
operations and higher incentive, interest and tax accruals.
Net cash used by investing activities during 1998 was $439.7 million compared to
$83.6 million during 1997, 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. The fiscal year 1999 capital expenditure budget for these
activities is estimated at $90 million. During 1998 expenditures of $160.6
million were incurred which included the purchase of expanded shale and clay
facilities in Colorado, additional ready-mix plants in Texas and Louisiana and
bar mill upgrades at the Texas steel facility. Additionally, capital
expenditures of $92.7 million were incurred during 1998 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. Effective December 31, 1997, the
Company purchased Riverside for $115.4 million. On December 31, 1997, the
Company acquired the minority interest in Chaparral Steel Company for an
estimated $75.0 million, including transaction expenses net of related tax
benefits, of which $72.2 million had been paid through May 31, 1998.
-12-
<PAGE>
Net cash provided by financing activities during 1998 was $221.6 million
compared to $34.5 million used during 1997. Borrowings, net of debt retirements,
increased $213.8 million. In December 1997, the Company concluded the private
placement of $200 million in fixed-rate senior notes having an average maturity
of 12 years and average interest rate of 7.28%. In addition, the Company
increased the maximum borrowing limit on its revolving credit facility from $100
million to $350 million and extended its term until December 2002. This
financing, borrowing under the credit facility and cash provided by operations
funded the Company's 1998 capital expenditures. At May 31, 1998, $82.8 million
was outstanding under the credit facility and an additional $13.9 million had
been utilized to support letters of credit. 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 for a gross proceeds of $200 million. A portion of these proceeds was
used to repay the outstanding borrowings under the Company's revolving credit
facility. During 1997, cash provided by operations funded the Company's
purchase of $41.6 million of its Common Stock and Chaparral's purchase of $3.8
million of its common stock. Effective February 1997, the Company declared a
two-for-one stock split and increased the quarterly cash dividend rate to $.075
per share.
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. As a result of the acquisition of Riverside, the
acquisition of the minority interest in Chaparral and the construction of the
Virginia steel facility, the Company has spent or committed to spend
approximately $650 million. The Company expects cash from operations, the net
proceeds from the June 5, 1998 sale of the Preferred Securities 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
The Company is aware of issues that users of many computer systems will face as
the year 2000 approaches and is in the process of determining Year 2000
compliance in its operating, financial and management information systems. The
Company does not anticipate any material disruption in its operations or
incurrence of material costs as a result of any failure by the Company to be in
compliance.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Auditors............................................ 14
Consolidated Balance Sheets - May 31, 1998 and 1997....................... 15
Consolidated Statements of Income - Years ended May 31, 1998,
1997 and 1996......................................................... 16
Consolidated Statements of Cash Flows - Years ended May 31, 1998,
1997 and 1996......................................................... 17
Consolidated Statements of Shareholders' Equity - Years ended
May 31, 1998, 1997 and 1996........................................... 18
Notes to Consolidated Financial Statements................................ 19
-13-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Texas Industries, Inc.
We have audited the accompanying consolidated balance sheets of Texas
Industries, Inc. and subsidiaries as of May 31, 1998 and 1997, and the related
consolidated statements of income, cash flows and changes in shareholders'
equity for each of the three years in the period ended May 31, 1998. 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 consolidated financial position of Texas Industries,
Inc. and subsidiaries at May 31, 1998 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended May 31, 1998, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
July 15, 1998
-14-
<PAGE>
CONSOLIDATED BALANCE SHEETS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
May 31,
- --------------------------------------------------------------------------------
In thousands 1998 1997
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 16,718 $ 19,834
Notes and accounts receivable 151,235 122,783
Inventories 162,010 167,146
Prepaid expenses 41,949 34,613
---------- ----------
TOTAL CURRENT ASSETS 371,912 344,376
OTHER ASSETS
Real estate and other investments 13,302 14,920
Goodwill and other intangibles 153,375 63,297
Other 30,735 26,553
---------- ----------
197,412 104,770
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 142,701 118,248
Buildings 69,900 66,156
Machinery and equipment 889,228 782,139
Construction in progress 160,758 32,880
---------- ----------
1,262,587 999,423
Less allowances for depreciation 646,080 600,646
---------- ----------
616,507 398,777
---------- ----------
$1,185,831 $ 847,923
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 80,495 $ 51,021
Accrued interest, wages and other items 51,067 36,909
Current portion of long-term debt 13,382 13,452
---------- ----------
TOTAL CURRENT LIABILITIES 144,944 101,382
LONG-TERM DEBT 405,749 176,056
DEFERRED FEDERAL INCOME TAXES AND OTHER CREDITS 81,812 80,080
MINORITY INTEREST -- 37,594
SHAREHOLDERS' EQUITY
Common stock, $1 par value 25,067 25,067
Additional paid-in capital 255,735 255,149
Retained earnings 358,307 262,774
Cost of common shares in treasury (85,783) (90,179)
---------- ----------
553,326 452,811
---------- ----------
$1,185,831 $ 847,923
========== ==========
See notes to consolidated financial statements.
-15-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
Year Ended May 31,
- --------------------------------------------------------------------------------
In thousands except per share 1998 1997 1996
- --------------------------------------------------------------------------------
NET SALES $1,196,275 $ 973,824 $ 967,449
COSTS AND EXPENSES (INCOME)
Cost of products sold 938,418 767,030 756,715
Selling, general and administrative 95,088 76,535 68,852
Interest 20,460 18,885 19,960
Other income (17,281) (11,848) (13,119)
---------- ---------- ----------
1,036,685 850,602 832,408
---------- ---------- ----------
INCOME BEFORE THE FOLLOWING ITEMS 159,590 123,222 135,041
Income taxes 53,060 41,189 47,256
---------- ---------- ----------
106,530 82,033 87,785
Minority interest in Chaparral (4,400) (6,559) (7,831)
---------- ---------- ----------
NET INCOME $ 102,130 $ 75,474 $ 79,954
========== ========== ==========
BASIC
Average shares 21,110 21,751 22,203
Earnings per share $ 4.85 $ 3.48 $ 3.61
========== ========== ==========
DILUTED
Average shares 21,819 22,163 22,682
Earnings per share $ 4.69 $ 3.42 $ 3.53
========== ========== ==========
Cash dividends $ .30 $ .25 $ .20
========== ========== ==========
See notes to consolidated financial statements.
-16-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended May 31,
- --------------------------------------------------------------------------------------------------
In thousands 1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $102,130 $ 75,474 $ 79,954
Loss on disposal of assets 503 2,131 977
Non-cash items
Depreciation, depletion and amortization 62,279 53,909 49,280
Deferred taxes (1,892) 683 6,822
Undistributed minority interest 4,177 5,684 6,771
Other - net 7,274 6,367 6,454
Changes in operating assets and liabilities
Notes and accounts receivable (7,666) (12,570) (13,417)
Inventories and prepaid expenses 14,472 (22,607) (22,921)
Accounts payable and accrued liabilities 31,896 (3,552) 3,637
Real estate and investments 1,847 4,380 9,906
-------- -------- ---------
Net cash provided by operations 215,020 109,899 127,463
INVESTING ACTIVITIES
Purchase of Riverside Cement Company (115,364) -- --
Purchase of Chaparral minority interest (72,175) -- --
Capital expenditures - Virginia steel facility (92,681) (678) --
Capital expenditures - other (160,561) (84,510) (79,300)
Proceeds from disposition of assets 3,687 5,281 1,799
Other - net (2,626) (3,733) (3,154)
-------- -------- ---------
Net cash used by investing (439,720) (83,640) (80,655)
FINANCING ACTIVITIES
Proceeds of long-term borrowing 338,836 69,206 97,552
Debt retirements (109,225) (53,392) (126,593)
Purchase of treasury shares (1,098) (41,572) (417)
Purchase of Chaparral stock -- (3,770) (12,506)
Dividends paid (6,307) (5,361) (4,451)
Other - net (622) 409 1,674
-------- -------- ---------
Net cash provided (used) by financing 221,584 (34,480) (44,741)
-------- -------- ---------
Increase (decrease) in cash (3,116) (8,221) 2,067
Cash at beginning of year 19,834 28,055 25,988
-------- -------- ---------
Cash at end of year $ 16,718 $ 19,834 $ 28,055
======== ======== =========
</TABLE>
See notes to consolidated financial statements.
-17-
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Common
Stock Additional Treasury Total
Preferred $1 Par Paid-in Retained Common Shareholders'
In thousands Stock Value Capital Earnings Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
May 31, 1995 $ 598 $12,534 $266,045 $119,587 $(55,655) $343,109
Net income 79,954 79,954
Cash dividends
Preferred stock - $4.72 a share (28) (28)
Common stock - $.20 a share (4,423) (4,423)
Treasury stock issued for bonuses and options-
194,628 shares 288 (1,161) 3,328 2,455
Treasury stock purchased - 15,696 shares (417) (417)
Retirement of preferred stock (598) (30) (628)
--------- ------- -------- -------- -------- --------
May 31, 1996 -- 12,534 266,303 193,929 (52,744) 420,022
Net income 75,474 75,474
Cash dividends
Common stock - $.25 a share (5,361) (5,361)
Shares issued under two-for-one stock split 12,533 (12,533) --
Treasury stock issued for bonuses and options-
262,497 shares 1,379 (1,268) 4,137 4,248
Treasury stock purchased - 1,566,554 shares (41,572) (41,572)
--------- ------- -------- -------- -------- --------
May 31, 1997 -- 25,067 255,149 262,774 (90,179) 452,811
Net income 102,130 102,130
Cash dividends
Common stock - $.30 a share (6,307) (6,307)
Treasury stock issued for bonuses and options-
312,075 shares 586 (290) 5,494 5,790
Treasury stock purchased - 19,737 shares (1,098) (1,098)
--------- ------- -------- -------- -------- --------
May 31, 1998 $ -- $25,067 $255,735 $358,307 $(85,783) $553,326
========= ======= ======== ======== ======== ========
</TABLE>
At May 31, 1998, Common Stock and Additional Paid-in Capital include $127.8
million of accumulated transfers from Retained Earnings in connection with stock
dividends.
See notes to consolidated financial statements.
-18-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Texas Industries, Inc. ("TXI" or the "Company"), is a leading supplier of
construction materials through two business segments: structural steel and
specialty bar products (the "Steel" segment); and cement, aggregate and concrete
products (the "CAC" segment). 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. 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.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 $22.2 million at May 31, 1998 and $17.9 million at
May 31, 1997. Goodwill resulting from the acquisitions of Chaparral Steel
Company and Riverside Cement Company, totaling $145.6 million at May 31, 1998
and $57.2 million at May 31, 1997 (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.
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 the outstanding shares for the dilutive effect of stock
options and awards.
-19-
<PAGE>
Basic and Diluted EPS are calculated as follows:
- ----------------------------------------------------------------------------
In thousands except per share 1998 1997 1996
- ----------------------------------------------------------------------------
Earnings:
Net income $102,130 $ 75,474 $ 79,954
Dividend on preferred stock -- -- (28)
Contingent price amortization 233 233 233
-------- -------- --------
$102,363 $ 75,707 $ 80,159
======== ======== ========
Shares:
Weighted-average shares outstanding 21,010 21,665 22,108
Contingently issuable shares 100 86 95
-------- -------- --------
Basic weighted-average shares 21,110 21,751 22,203
Stock option and award dilution 709 412 479
-------- -------- --------
21,819 22,163 22,682
======== ======== ========
Basic earnings per share $ 4.85 $ 3.48 $ 3.61
======== ======== ========
Diluted earnings per share $ 4.69 $ 3.42 $ 3.53
======== ======== ========
Recent Accounting Pronouncements. In June 1997, the Financial Accounting
Standards Board issued Statements of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" and No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS No. 130 and 131"). These statements
are effective for fiscal years beginning after December 15, 1997, although
earlier adoption is permitted. SFAS No. 130 requires the presentation of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS No. 131 requires the disclosure of financial and
descriptive information about reportable operating segments. Both SFAS No. 130
and 131 are modifications of existing disclosure requirements which will have no
effect on the results of operations or financial condition of the Company.
WORKING CAPITAL
Working capital totaled $227.0 million at May 31, 1998, compared to $243.0
million at the prior year-end.
Notes and accounts receivable of $151.2 million at May 31, 1998, compared with
$122.8 million in 1997, are presented net of allowances for doubtful receivables
of $3.4 million in 1998 and $2.5 million in 1997.
Inventories are summarized as follows:
--------------------------------------------------------
In thousands 1998 1997
--------------------------------------------------------
Finished products $ 59,290 $ 77,021
Work in process 34,043 27,162
Raw materials and supplies 68,677 62,963
-------- --------
$162,010 $167,146
======== ========
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 in 1998 and $11.7 million in 1997.
-20-
<PAGE>
LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
In thousands 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Revolving credit facility maturing in 2002, interest rate
8.5% $ 82,750 $40,000
Senior notes due through 2017, interest rates
average 7.28% 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 --
Senior note due through 1999, interest rate
14.2% 4,091 --
Pollution control bonds, due through 2007, interest rate
6.38% (75% of prime) 7,255 7,935
Replaced Chaparral debt -- 64,182
Other, maturing through 2005, interest rates
from 8% to 10% 2,035 2,391
-------- --------
419,131 189,508
Less current maturities 13,382 13,452
-------- --------
$405,749 $176,056
======== ========
</TABLE>
Annual maturities of long-term debt for each of the five succeeding years are
$13.4, $9.1, $9.0, $8.8 and $91.5 million.
The Company has available a bank-financed $350 million long-term revolving
credit facility. In addition to the $82.8 million currently outstanding under
this facility, $13.9 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 .15% are paid on the unused portion of this facility.
On December 31, 1997, Chaparral's senior and first mortgage notes, which
restricted dividends and advances to its shareholders including the parent
company were replaced with senior notes of the Company having the same interest
rate and maturities as the Chaparral notes but with loan covenants the same as
the Company's other senior notes.
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 was $23.2 million in 1998, $19.3 million in 1997 and
$18.9 million in 1996. Interest capitalized totaled $4.6 million in 1998 and
$190,000 in 1997.
ACQUISITIONS
On December 31, 1997, the Company acquired the minority interest in Chaparral
for cash consideration of $15.50 per share. The total acquisition cost
including transaction expenses net of related tax benefits is estimated at $75.0
million. The excess of the acquisition cost over the fair value of the net
assets acquired, $32.7 million, was recorded as goodwill and is being amortized
over a 40-year period.
-21-
<PAGE>
Effective December 31, 1997, the Company acquired Riverside Cement Company for
$115.4 million in cash and the assumption of certain liabilities. Riverside
Cement Company owns and operates cement plants in Crestmore and Oro Grande,
California with distribution terminals in the northern and southern parts of the
state. The estimated purchase price was allocated to the net assets acquired
based on their estimated fair values. The fair value of tangible assets
acquired and liabilities assumed was $65.8 million and $9.1 million,
respectively. The balance of the purchase price, $58.7 million, was recorded as
goodwill and is being amortized over a 40-year period.
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
Common stock consists of:
-------------------------------------------------------------
In thousands 1998 1997
-------------------------------------------------------------
<S> <C> <C>
Shares authorized 40,000 40,000
Shares outstanding at May 31 21,188 20,896
Diluted average common shares outstanding 21,819 22,163
Shares held in treasury 3,879 4,171
Shares reserved for stock options and other 3,880 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, 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.
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. The
Company has elected to continue utilizing the accounting prescribed by APB No.
25 for stock issued under these plans. If compensation cost had been recognized
based on the fair value at the date of grant consistent with the method
prescribed by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"), the Company's net income and
earnings per share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
--------------------------------------------------------
In thousands 1998 1997 1996
--------------------------------------------------------
<S> <C> <C> <C>
Net income
As reported $102,130 $75,474 $79,954
Pro forma 100,055 74,272 79,548
Basic earnings per share
As reported 4.85 3.48 3.61
Pro forma 4.75 3.42 3.59
Diluted earnings per share
As reported 4.69 3.42 3.53
Pro forma 4.64 3.39 3.53
</TABLE>
-22-
<PAGE>
Because the method of accounting under SFAS No. 123 has not been applied to
options granted prior to June 1, 1995, the pro forma compensation cost may not
be representative of that to be expected in future years.
The weighted-average fair value of options granted in 1998, 1997 and 1996 were
$16.57, $9.46 and $7.98, respectively. The fair value of each option grant was
estimated on the date of grant for purposes of the pro forma disclosures using
the Black-Scholes option-pricing model based on the following weighted average
assumptions:
<TABLE>
<CAPTION>
-----------------------------------------------
In thousands 1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Dividend yield .65% 1.05% .89%
Volatility factor .258 .240 .240
Risk-free interest rate 5.45% 6.38% 6.15%
Expected life in years 6.4 6.4 6.4
</TABLE>
A summary of option transactions for the three years ended May 31, 1998,
follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Shares Under Weighted-Average
Option Option Price
--------------------------------------------------------------------
<S> <C> <C>
Outstanding at May 31, 1995 1,096,882 $12.70
Granted 374,400 22.74
Exercised (192,444) 11.05
Canceled (46,240) 13.45
--------- ------
Outstanding at May 31, 1996 1,232,598 15.98
Granted 809,200 26.96
Exercised (234,067) 10.35
Canceled (10,600) 22.66
--------- ------
Outstanding at May 31, 1997 1,797,131 21.62
Granted 365,550 46.27
Exercised (301,678) 16.05
Canceled (44,040) 21.35
--------- ------
Outstanding at May 31, 1998 1,816,963 $27.51
========= ======
</TABLE>
Options exercisable as of May 31 were 430,213 shares in 1998, 347,491 shares in
1997 and 329,918 shares in 1996 at a weighted-average option price of $19.87;
$15.18 and $11.04, respectively. The option shares outstanding at May 31, 1998
have an exercise price between $11.47 and $46.38 and a weighted-average
remaining life of 7.9 years. The Company has reserved 1,918,530 shares for
future grants.
-23-
<PAGE>
INCOME TAXES
The Company made income tax payments of $48.5 million, $39.5 million, and $38.7
million in 1998, 1997 and 1996, respectively.
The provisions for income taxes are composed of:
<TABLE>
<CAPTION>
------------------------------------------
In thousands 1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
Current $54,952 $40,506 $40,434
Deferred (1,892) 683 6,822
------- ------- -------
Expense $53,060 $41,189 $47,256
======= ======= =======
</TABLE>
A reconcilement from statutory federal taxes to the above provisions follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
In thousands 1998 1997 1996
- -------------------------------------------------------------
<S> <C> <C> <C>
Taxes at statutory rate $55,856 $43,127 $47,264
Additional depletion (3,668) (2,984) (2,707)
Nondeductible goodwill 830 702 702
State income tax 1,160 912 1,905
Nontaxable insurance benefits (622) (664) (561)
Other - net (496) 96 653
------- ------- -------
$53,060 $41,189 $47,256
======= ======= =======
</TABLE>
The components of the net deferred tax liability at May 31 are summarized below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
In thousands 1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Deferred compensation $ 7,119 $ 5,523
Expenses not currently tax deductible 7,634 8,332
Tax cost in inventory 253 586
------- -------
Total deferred tax assets 15,006 14,441
Deferred tax liabilities
Accelerated tax depreciation 63,048 64,154
Deferred real estate gains 5,178 5,178
Other 1,305 1,526
------- -------
Total deferred tax liabilities 69,531 70,858
------- -------
Net tax liability 54,525 56,417
Less current portion (asset) (5,771) (6,236)
------- -------
Net deferred tax liability $60,296 $62,653
======= =======
</TABLE>
-24-
<PAGE>
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.
RETIREMENT PLANS
Substantially all employees of the Company are covered by a series of defined
contribution retirement plans. The amount of pension expense charged to costs
and expenses for the above plans was $4.3 million in 1998, $3.4 million in 1997
and $2.9 million in 1996. It is the Company's policy to fund the plans to the
extent of charges to income.
INCENTIVE PLANS
All personnel employed as of May 31 share in the pretax income of the Company
for the year then ended based on predetermined formulas. The duration of most
of the plans is one year; certain executives are additionally covered under a
three-year plan. All plans are subject to annual review by the Company's Board
of Directors. The expense included in selling, general and administrative was
$17.7 million, $14.8 million and $15.1 million for 1998, 1997 and 1996,
respectively.
Certain executives of Chaparral participate in a deferred compensation plan
based on a five-year average of earnings. Amounts recorded as expense under the
plan were $2.3 million, $1.9 million and $700,000 for 1998, 1997 and 1996,
respectively.
OPERATING LEASES
Total expense for operating leases for mobile equipment, office space and other
items (other than for mineral rights) amounted to $22.2 million in 1998, $17.2
million in 1997 and $16.4 million in 1996. Non-cancelable operating leases with
an initial or remaining term of more than one year totaled $69.9 million at May
31, 1998. Annual lease payments for the five succeeding years are $19.6 million,
$13.0 million, $12.3 million, $8.8 million and $11.3 million.
BUSINESS SEGMENTS
Business segment information is presented on pages 10 and 11. Operating profit
is net sales less operating costs and expenses, excluding general corporate
expenses and interest expense. Identifiable assets by segment are those assets
that are used in the Company's operation in each segment. Corporate assets
consist primarily of cash, real estate subsidiaries and other financial assets
not identified with a major business segment.
-25-
<PAGE>
SUBSEQUENT EVENT
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.
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).
-26-
<PAGE>
QUARTERLY FINANCIAL INFORMATION (Unaudited)
The following is a summary of quarterly financial information (in thousands
except per share):
<TABLE>
<CAPTION>
------------------------------------------------------------
1998 Aug. Nov. Feb. May
------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales
Steel $ 179,006 $ 175,418 $174,520 $176,745
CAC 118,054 107,269 106,901 158,362
--------- --------- -------- --------
297,060 282,687 281,421 335,107
========= ========= ======== ========
Operating profit
Steel 16,019 22,695 20,799 28,012
CAC 32,727 25,298 16,869 32,832
--------- --------- -------- --------
48,746 47,993 37,668 60,844
========= ========= ======== ========
Net income 24,710 23,449 18,628 35,343
Per share
Net income
Basic 1.18 1.12 .88 1.67
Diluted 1.16 1.08 .85 1.60
Dividends .075 .075 .075 .075
Stock price
High 34 11/16 52 58 68 1/4
Low 23 5/8 33 5/16 42 1/2 50 3/4
------------------------------------------------------------
1997 Aug. Nov. Feb. May
------------------------------------------------------------
Net Sales
Steel $ 149,527 $ 143,637 $147,715 $175,797
CAC 96,415 90,739 68,903 101,091
--------- --------- -------- --------
245,942 234,376 216,618 276,888
========= ========= ======== ========
Operating profit
Steel 15,508 14,754 17,861 23,364
CAC 25,513 22,557 8,176 26,802
--------- --------- -------- --------
41,021 37,311 26,037 50,166
========= ========= ======== ========
Net income 19,884 17,903 10,126 27,561
Per share
Net income*
Basic .89 .81 .48 1.32
Diluted .87 .79 .47 1.30
Dividends .05 .05 .075 .075
Stock price
High 34 5/16 33 7/16 29 5/16 29 1/4
Low 31 5/16 26 15/16 24 1/8 20 7/8
</TABLE>
* The sum of these amounts does not equal the annual amount because of
changes in the average number of common equity shares outstanding during
the year.
-27-
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
PART III
In accordance with paragraph (3) of General Instruction G to Form 10-K, Part III
of this report is omitted because the Registrant will file with the Securities
Exchange Commission, not later than 120 days after May 31, 1998, a definitive
proxy statement pursuant to Regulation 14A involving the election of Directors.
Reference is made to the sections of such proxy statement entitled "Section
16(a) Beneficial Ownership Reporting Compliance", "Election of Directors",
"Executive Compensation", "Report of the Compensation Committee on Executive
Compensation " and "Security Ownership of Management", which sections of such
proxy statement are incorporated herein by reference. Information concerning the
Registrant's executive officers is set forth under Part I, Item 4A of this
report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report.
(1) Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets - May 31, 1998 and 1997
Consolidated Statements of Income - Years ended May 31, 1998, 1997 and
1996
Consolidated Statements of Cash Flows - Years ended May 31, 1998, 1997
and 1996
Consolidated Statements of Shareholders' Equity - Years ended May 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Financial statement schedules have been omitted because they are not applicable
or the information required therein is included elsewhere in the financial
statements or notes thereto.
(3) Listing of Exhibits
2.1 Agreement and Plan of Merger dated as of July 30, 1997 among
Chaparral Steel Company, the Company and TXI Acquisition Inc.
incorporated by reference to Exhibit (c) of the Company's
Schedule 13E-3/A Transaction Statement dated November 28, 1997
and incorporated herein by reference.
3.1 Articles of Incorporation (previously filed and incorporated
herein by reference)
3.2 By-laws (previously filed and incorporated herein by
reference)
4.1 Instruments defining rights of security holders (previously
filed and incorporated herein by reference)
The Registrant agrees to furnish to the Commission, upon request, copies of all
instruments with respect to long-term debt not being registered where the total
amount of securities authorized thereunder does not exceed 10% of the total
assets of Registrant and its subsidiaries on a consolidated basis.
-28-
<PAGE>
(3) Listing of Exhibits-Continued
10.1 Partnership Interests Purchase Agreement with an effective date of
December 31, 1997 by and among TXI California Inc., TXI Riverside
Inc., RVC Venture Corp. and Ssangyong/Riverside Venture Corp.
filed with the Securities and Exchange Commission on Form 8-K
dated January 26, 1998, and incorporated herein by reference.
10.2 $350,000,000 Second Amended and Restated Credit Agreement among
Texas Industries Inc., Certain Leaders, Certain Co-Agents and
NationsBank of Texas, N.A., as Administrative Lender dated
December 18, 1997 filed with the Securities and Exchange
Commission on Form 10-Q dated April 10, 1998, and incorporated
herein by reference.
10.3 First Amendment to Second Amended and Restated Credit Agreement
among Texas Industries Inc., Certain Leaders, Certain Co-Agents
and NationsBank, N.A., as Administrative Lender dated May 28,
1998.
10.4 Texas Industries, Inc. $80,000,000 7.15% Senior Notes, Series A,
due April 15, 2006; $40,000,000 7.20% Senior Notes, Series B, due
April 15, 2007; $10,000,000 7.28% Senior Notes, Series C, due
April 15, 2009; $45,000,000 7.395% Senior Notes, Series D, due
April 15, 2012; $25,000,000 7.59% Senior Notes, Series E, due
April 15, 2017 note agreement dated as of December 18, 1997 filed
with the Securities and Exchange Commission on Form 10-Q dated
April 10, 1998, and incorporated herein by reference.
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Auditors
24.1 Power of Attorney for certain members of the Board of Directors
27.1 Financial Data Schedule (electronically filed only)
This schedule contains summary financial information extracted from the
Registrant's May 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.
(b) Reports on Form 8-K
None
-29-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the issuer has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 25th day of August, 1998.
TEXAS INDUSTRIES, INC.
By /s/ Robert D. Rogers
---------------------------------
Robert D. Rogers, President
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 and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert D. Rogers President and Chief Executive Officer August 25, 1998
- ----------------------------- (Principal Executive Officer)
Robert D. Rogers
/s/ Richard M. Fowler Vice President - Finance and August 25, 1998
- ----------------------------- Chief Financial Officer
Richard M. Fowler (Principal Financial Officer)
/s/ James R. McCraw Vice President - Accounting/Information Services August 25, 1998
- ----------------------------- (Principal Accounting Officer)
James R. McCraw
- ----------------------------- Director August 25, 1998
Robert Alpert
/s/ John M. Belk* Director August 25, 1998
- -----------------------------
John M. Belk
/s/ Gordon E. Forward* Director August 25, 1998
- -----------------------------
Gordon E. Forward
/s/ Richard I. Galland* Director August 25, 1998
- -----------------------------
Richard I. Galland
/s/ Gerald R. Heffernan* Director August 25, 1998
- -----------------------------
Gerald R. Heffernan
/s/ James M. Hoak* Director August 25, 1998
- -----------------------------
James M. Hoak
- ----------------------------- Director August 25, 1998
Eugenio Clariond Reyes
/s/ Robert D. Rogers Director August 25, 1998
- -----------------------------
Robert D. Rogers
- ----------------------------- Director August 25, 1998
Ian Wachtmeister
/s/ Elizabeth C. Williams* Director August 25, 1998
- -----------------------------
Elizabeth C. Williams
* BY /s/ James R. McCraw Vice President - Accounting/Information Services August 25, 1998
- -----------------------------
James R. McCraw
</TABLE>
-30-
<PAGE>
INDEX TO EXHIBITS
Exhibits Page
2.1 Agreement and Plan of Merger dated as of July 30, 1997 among Chaparral
Steel Company, the Company and TXI Acquisition Inc., incorporated by
reference to Exhibit (c) of the Company's Schedule 13E-3/A Transaction
Statement dated November 28, 1997........................................*
3.1 Articles of Incorporation................................................*
3.2 By-Laws..................................................................*
4.1 Instruments defining rights of security holders..........................*
10.1 Partnership Interests Purchase Agreement with an effective date of
December 31, 1997 by and among TXI California Inc., TXI Riverside Inc.,
RVC Venture Corp. and Ssangyong/Riverside Venture Corp. filed with
the Securities and Exchange Commission on Form 8-K dated January 26,
1998.....................................................................*
10.2 $350,000,000 Second Amended and Restated Credit Agreement among Texas
Industries Inc., Certain Leaders, Certain Co-Agents and NationsBank of
Texas, N.A., as Administrative Lender dated December 18, 1997 filed
with the Securities and Exchange Commission on Form 10-Q dated
April 10, 1998...........................................................*
10.3 First Amendment to Second Amended and Restated Credit Agreement dated
May 28, 1998............................................................32
10.4 Texas Industries, Inc. $80,000,000 7.15% Senior Notes, Series A, due
April 15, 2006; $40,000,000 7.20% Senior Notes, Series B, due April 15,
2007; $10,000,000 7.28% Senior Notes, Series C, due April 15, 2009;
$45,000,000 7.395% Senior Notes, Series D, due April 15, 2012;
$25,000,000 7.59% Senior Notes, Series E, due April 15, 2017 note
agreement dated as of December 18, 1997 filed with the Securities and
Exchange Commission on Form 10-Q dated April 10, 1998....................*
21.1 Subsidiaries of the Registrant..........................................36
23.1 Consent of Independent Auditors.........................................37
24.1 Power of Attorney for certain members of the Board of Directors.........38
27.1 Financial Data Schedule.................................................**
* Previously filed and incorporated herein by reference.
** Electronically filed only.
-31-
<PAGE>
EXHIBIT 10.3
FIRST AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this
"First Amendment), dated as of May 28, 1998, is entered into among TEXAS
INDUSTRIES, INC., a Delaware corporation (the "Borrower"), the banks listed on
the signature pages hereof (the "Lenders"), certain Co-Agents (the "Co-Agents"),
and NATIONSBANK, N.A. (successor by merger to NationsBank of Texas, N.A.), as
Administrative Lender for the Lenders (in said capacity, the "Administrative
Lender").
BACKGROUND
A. The Borrower, the Lenders, the Co-Agents, and the Administrative
Lender are parties to that certain Second Amended and Restated Credit Agreement,
dated as of December 18, 1997 (the "Credit Agreement"; the terms defined in the
Credit Agreement and not otherwise defined herein shall be used herein as
defined in the Credit Agreement).
B. The Borrower, the Lenders, the Co-Agents, and the Administrative
Lender desire to amend the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower, the
Lenders, the Co-Agents, and the Administrative Lender covenant and agree as
follows:
1. AMENDMENTS
(a) Article 1 of the Credit Agreement is hereby amended by adding the
following defined terms thereto in proper alphabetical order:
"Convertible Subordinated Debentures" means the Convertible
Subordinated Debentures of the Borrower not to exceed 6.5%, in an aggregate
principal amount not to exceed $250,000,000, due 2028.
"Convertible Trust Preferred Securities" means the Convertible Trust
Preferred Securities not to exceed 6.5%, in an aggregate amount not to exceed
$250,000,000 evidencing preferred undivided beneficial interests in the assets
of TXI Capital Trust I.
"Debt Conversion Event" means the earliest to occur of (a) any default
or event of default (however defined or designated) in any instrument or
agreement governing, evidencing or creating the Convertible Trust Preferred
Securities or the Convertible Subordinated Debentures, (b) any non-payment,
postponement or deferral of distributions, dividends or interest on the
Convertible Trust Preferred Securities or the Convertible Subordinated
Debentures, whether or not expressly permitted, (c) any mandatory redemption of
the Convertible Trust Preferred Securities or the Convertible Subordinated
Debentures or (d) any Special Event (or other event howsoever designated) the
effect of which would result in the dissolution or termination of TXI Capital
Trust I or would cause the holders of the Convertible Trust Preferred Securities
to become holders of the Convertible Subordinated Debentures.
"Preferred Securities Guarantee" means that certain Preferred
Securities Guarantee executed by the Borrower and guaranteeing, on a
subordinated basis to the Obligations, distributions and redemption obligations
in respect of the Convertible Trust Preferred Securities.
"TXI Capital Trust I" means TXI Capital Trust I, a Delaware statutory
business trust and wholly-owned Subsidiary of the Borrower.
<PAGE>
(b) The definition of "Dividend" set forth in Section 1.1 of the Credit
Agreement is hereby amended to read as follows:
"Dividend" means, as to any Person, any declaration or payment of any
dividend (other than a stock dividend) on, or the making of any distribution,
loan, advance or investment to or in any holder of, (a) any shares of capital
stock (or other equity or beneficial interest) of such Person (other than
salaries and bonuses paid in the ordinary course of business) or (b) the
Convertible Trust Preferred Securities.
(c) The definition of "Fixed Charges" set forth in Section 1.1 of the
Credit Agreement is hereby amended to read as follows:
"Fixed Charges" means, for any date of calculation, calculated for the
Borrower and its Subsidiaries on a consolidated basis determined in accordance
with GAAP, the sum of, without duplication, (a) scheduled principal payments on
Total Debt (excluding any payments pursuant to Section 2.8(c) hereof), plus (b)
interest expense (including interest expense pursuant to Capitalized Lease
Obligations), plus (c) Dividends (including accrued and unpaid Dividends), in
each case for the four fiscal quarters immediately preceding the date of
calculation.
(d) The definition of "Net Worth" set forth in Section 1.1 of the Credit
Agreement is hereby amended to read as follows:
"Net Worth" means, for the Borrower and its Subsidiaries, on a
consolidated basis, determined in accordance with GAAP, the sum of (without
duplication): (i) capital stock taken at par value, plus (ii) capital surplus,
plus (iii) retained earnings less treasury stock, plus (iv) the Convertible
Trust Preferred Securities.
(e) The definition of "Total Debt" set forth in Section 1.1 of the Credit
Agreement is hereby amended by adding the following sentence to the end thereof
to read as follows:
Notwithstanding the immediately preceding sentence, Total Debt shall
not include the Convertible Subordinated Debentures until and unless a Debt
Conversion Event shall occur.
(f) Section 7.1 of the Credit Agreement is hereby amended by (i) amending
the reference to "Section 7.5(c)" in clause (d) thereto to "Section 7.5(f)",
(ii) deleting "and" at the end of clause (i) thereof, (iii) deleting "." at the
end of clause (j) thereof and inserting "; and" in lieu thereof and (iv) adding
the following new clause (k) thereto read as follows:
(k) Indebtedness in respect of the Convertible Trust Preferred
Securities.
(g) Section 7.3 of the Credit Agreement is hereby amended by (i) deleting
"and" at the end of clause (g) thereof, (ii) deleting "-" at the end of clause
(h) thereof and (iii) adding the following new clause (i) thereto to read as
follows:
(i) Investment in the Convertible Subordinated Debentures.
(h) Section 7.5 of the Credit Agreement is hereby amended to read as
follows:
Section 7.5 Guaranties. The Borrower shall not, and shall not permit
any Subsidiary to, at any time make or issue any Guaranty, or assume, be
obligated with respect to, or permit to be outstanding any Guaranty, of any
obligation of any other Person except (a) the Subsidiary Guaranty, (b) the
endorsement in the ordinary course of business of negotiable instruments for
deposit or collection, (c) Guaranties in respect of the Prudential Borrower
Notes, the Prudential Chaparral Notes and the Senior Notes, (d) the Preferred
Securities Guarantee, (e) Guaranties in respect of Indebtedness otherwise
permitted pursuant to Section 7.1 hereof, and (f) other Guaranties, not to
exceed, together with the Indebtedness permitted pursuant to Section 7.1(d)
hereof, in aggregate amount 5% of Net Worth at any time of determination.
(i) Section 8.1 of the Credit Agreement is hereby amended by (i) deleting
"." at the end of Section 8.1(n) thereof and adding "; or" in lieu thereof and
(ii) adding the following new clause 8.1(o) thereto to read as follows:
<PAGE>
(o) The Borrower or any Subsidiary shall default in the payment when
due of any obligations in respect of the Convertible Trust Preferred Securities
or the convertible Subordinated Debentures (other than a valid extension of any
interest payment period with respect thereto), or the Borrower or any Subsidiary
shall default in the performance of any agreement or instrument governing the
Convertible Trust Preferred Securities or the Convertible Subordinated
Debentures or under which the Convertible Trust Preferred Securities or the
Convertible Subordinated Debentures are created or evidenced beyond any
applicable grace period (or any event thereunder shall occur and be continuing),
if the effect of such default or event is to permit or cause the holders of the
Convertible Trust Preferred Securities or the Convertible Subordinated
Debentures (or trustee on behalf of any such holder) to (i) cause any obligation
in respect of the Convertible Trust Preferred Securities or the Convertible
Subordinated Debentures to become due prior to its maturity date or the date
otherwise established for such obligation to be satisfied, (ii) require the
Borrower or any of its Subsidiaries to prepay, purchase or redeem the
Convertible Trust Preferred Securities or (iii) require any payment to be made
under the Preferred Securities Guarantees.
2. REPRESENTATIONS AND WARRANTIES TRUE: NO EVENT OF DEFAULT. By its
execution and delivery hereof, the Borrower represents and warrants that, as of
the date hereof and after giving effect to the amendments contemplated by the
foregoing Section 1:
(a) the representations and warranties contained in the Credit Agreement
are true and correct on and as of the date hereof as made on and as of such
date;
(b) no event has occurred and is continuing which constitutes a Default or
an Event of Default;
(c) the Borrower has full power and authority to execute and deliver this
First Amendment, and this First Amendment and the Credit Agreement, as amended
hereby, constitute the legal, valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms, except as enforceability
may be limited by applicable debtor relief laws and by general principles of
equity (regardless of whether enforcement is sought in a proceeding in equity or
at law) and except as rights to indemnity may be limited by federal or state
securities laws;
(d) neither the execution, delivery and performance of this First
Amendment or the Credit Agreement, as amended by this First Amendment, nor the
consummation of any transactions herein or therein (including, but not limited
to, the incurrence of obligations in respect of the Convertible Trust Preferred
Securities, the Convertible Subordinated Debentures and the Preferred Securities
Guarantee), will contravene or conflict with any law to which the Borrower or
any of its Subsidiaries is subject or any indenture, agreement or other
instrument to which the Borrower or any of its Subsidiaries or any of their
respective property is subject; and
(e) no authorization, approval consent, or other action by, notice to, or
filing with, any governmental authority or other Person is required for the
execution, delivery or performance by the Borrower of this First Amendment.
3. CONDITIONS OF EFFECTIVENESS. This First Amendment shall be effective
as of the date first above written, subject to the following:
(a) the Administrative Lender shall have received counterparts of this
First Amendment executed by the Determining Lenders;
(b) the Administrative Lender shall have received counterparts of this
First Amendment executed by the Borrower and acknowledged by each Guarantor;
and
(c) the Administrative Lender shall have received, in form and substance
satisfactory to the Administrative Lender and its counsel, such other documents,
certificates and instruments as the Administrative Lender shall require.
4. GUARANTOR'S ACKNOWLEDGEMENT. By signing below, each of the Guarantors
(i) acknowledges, consents and agrees to the execution, delivery and performance
by the Borrower of this First Amendment, (ii) acknowledges and agrees that its
obligations in respect of its Subsidiary Guaranty are not released, modified,
impaired or affected in any manner by this First Amendment or any of the
provisions contemplated herein, (iii) ratifies and confirms its obligations
under its Subsidiary Guaranty and (iv) acknowledges and agrees that it has no
claims or offsets against, or defenses or counterclaims to, its Subsidiary
Guaranty.
<PAGE>
5. APPROVAL OF SUBORDINATED DEBT. By signing below, each of the Lenders,
(a) approves the terms of the Convertible Subordinated Debentures and (b) agrees
that the Convertible Subordinated Debentures are Subordinated Debt for purposes
of the Credit Agreement.
6. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this First Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", or words of like import shall
mean and be a reference to the Credit Agreement, as affected and amended hereby.
(b) The Credit Agreement, as amended by the amendments referred to above,
shall remain in full force and effect and is hereby ratified and confirmed.
7. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all
costs and expenses of the Administrative Lender in connection with the
preparation, reproduction, execution and delivery of this First Amendment and
the other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Lender with respect thereto and with respect to advising the Administrative
Lender as to its rights and responsibilities under the Credit Agreement, as
hereby amended).
8. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each which when so executed and delivered shall be deemed to be an
original and all of which when taken together shall constitute but one and the
same instrument.
9. GOVERNING LAW: BINDING EFFECT. This First Amendment shall be
governed by and construed in accordance with the laws of the State of Texas and
shall be binding upon the Borrower and each Lender and their respective
successors and assigns.
10. HEADINGS. Section headings in this First Amendment are included
herein for convenience of reference only and shall not constitute a part of this
First Amendment for any other purpose.
11. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS FIRST
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO ORAL UNWRITTEN
AGREEMENTS BETWEEN THE PARTIES.
- --------------------------------------------------------------------------------
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 21.1
STATE OR OTHER JURISDICTION
OF INCORPORATION OR
SUBSIDIARIES OF REGISTRANT ORGANIZATION
- -------------------------- ------------
Athens Brick Company Delaware
Brookhollow Corporation Delaware
Brookhollow of Alexandria, Inc. Louisiana
Brook Hollow Properties, Inc. Texas
Brookhollow of North Carolina, Inc. North Carolina
Brookhollow of Virginia, Inc. Virginia
Southwestern Financial Corporation,
formerly Clodine Properties Inc. Texas
Cemstar Inc. Texas
Chaparral Steel Company Delaware
America Steel Transport, Inc. (80% owned) Texas
Castelite Steel Products Inc. Texas
Chaparral Steel Holdings, Inc. Delaware
Chaparral Steel Trust Delaware
Chaparral Steel Texas, Inc. Delaware
Chaparral Steel Midlothian, LP Delaware
Star 2000 LP Delaware
Chaparral (Virginia) Inc. Delaware
Creole Corporation Delaware
Diamond Pro Inc. Texas
Dolphin Construction Company Louisiana
Earthen Technologies Inc. Texas
Louisiana Industries, Inc. Louisiana
Pacific Custom Materials, Inc. California
TXI Aviation, Inc. Texas
TXI California Inc. Delaware
TXI Riverside Inc. Delaware
Riverside Cement Company California
Partin Limestone Products, Inc. California
Riverside Cement Holdings Company California
TXI Cement Company, formerly TXI Structural Products, Inc. Delaware
TXI Transportation Company Texas
TXI Capital Trust I Delaware
TXI Corp., formerly TXI Texas, Inc. Delaware
TXI Operating Trust Delaware
Texas Industries Holdings, Inc. Delaware
Texas Industries Trust Delaware
TXI Operations, LP Delaware
Indirect subsidiaries of Registrant are indented and listed following their
direct parent corporations.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to 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 July 15, 1998, with respect to the consolidated financial
statements of Texas Industries, Inc. included in the annual report on Form 10-K
for the year ended May 31, 1998.
Ernst & Young LLP
Dallas, Texas
August 26, 1998
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
Each of the undersigned hereby constitutes and appoints ROBERT D. ROGERS,
RICHARD M. FOWLER and JAMES R. McCRAW, and each of them, with full power of
substitution as the undersigned's attorney or attorney-in-fact, to sign for each
of them and in each of their names, as members of the Board of Directors, an
Annual Report on Form 10-K for the year ended May 31, 1998, and any and all
amendments, filed by TEXAS INDUSTRIES, INC., a Delaware corporation, with the
Securities and Exchange Commission under the provisions of the Securities Act of
1934, as amended, with full power and authority to do and perform any and all
acts and things necessary or appropriate to be done in the premises.
DATED: July 15, 1998
-------------------------------
ROBERT ALPERT
(Director)
/s/ JOHN M. BELK
-------------------------------
JOHN M. BELK
(Director)
/s/ GORDON E. FORWARD
-------------------------------
GORDON E. FORWARD
(Director)
/s/ RICHARD I. GALLAND
-------------------------------
RICHARD I. GALLAND
(Director)
/s/ GERALD R. HEFFERNAN
-------------------------------
GERALD R. HEFFERNAN
(Director)
/s/ JAMES M. HOAK
-------------------------------
JAMES M. HOAK
(Director)
-------------------------------
EUGENIO CLARIOND REYES
(Director)
-------------------------------
IAN WACHTMEISTER
(Director)
/s/ ELIZABETH C. WILLIAMS
-------------------------------
ELIZABETH C. WILLIAMS
(Director)
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
On this 15th day of July, 1998, before me personally came XXXXXX XXXXXX,
JOHN M. BELK, GORDON E. FORWARD, RICHARD I. GALLAND, GERALD R. HEFFERNAN, JAMES
M. HOAK, XXXXXXX XXXXXXXX XXXXX, XXX XXXXXXXXXXXX AND ELIZABETH C. WILLIAMS,
known to me to be the same persons described in and who executed the foregoing
Power of Attorney and each of them duly acknowledged to me that they each
executed the same for the purposes therein stated.
/s/ GWYNN E. HERRICK
-------------------------------
[SEAL] Notary Public in and for the
State of Texas
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S AUDITED MAY 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> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<CASH> 16,718
<SECURITIES> 0
<RECEIVABLES> 154,643
<ALLOWANCES> 3,408
<INVENTORY> 162,010
<CURRENT-ASSETS> 371,912
<PP&E> 1,262,587
<DEPRECIATION> 646,080
<TOTAL-ASSETS> 1,185,831
<CURRENT-LIABILITIES> 144,944
<BONDS> 405,749
0
0
<COMMON> 25,067
<OTHER-SE> 528,259
<TOTAL-LIABILITY-AND-EQUITY> 1,185,831
<SALES> 1,196,275
<TOTAL-REVENUES> 1,196,275
<CGS> 938,418
<TOTAL-COSTS> 938,418
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,940
<INTEREST-EXPENSE> 20,460
<INCOME-PRETAX> 159,590
<INCOME-TAX> 53,060
<INCOME-CONTINUING> 106,530
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102,130
<EPS-PRIMARY> 4.85
<EPS-DILUTED> 4.69
</TABLE>
