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Filed Pursuant to Rule 424(b)(4)
Registration Nos. 333-50517 and 333-50517-01
PROSPECTUS
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4,000,000 Preferred Securities
TXI CAPITAL TRUST I
<TABLE>
<S> <C> <C>
5.5% Shared Preference Redeemable Securities ("SPuRS(SM)")
(Liquidation Preference $50 per Preferred Security)
fully and unconditionally guaranteed by
and convertible into the common stock of
TXI Logo TEXAS INDUSTRIES, INC.
</TABLE>
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The 5.5% Shared Preference Redeemable Securities (the "SPuRS" or "Preferred
Securities") offered hereby represent preferred undivided beneficial interests
in the assets of TXI Capital Trust I, a statutory business trust, created under
the laws of the State of Delaware (the "Trust"). Texas Industries, Inc., a
Delaware corporation ("TXI" or the "Company"), will own all the common
securities (the "Common Securities" and, together with the Preferred Securities,
the "Trust Securities") representing undivided beneficial interests in the
assets of the Trust. The Trust exists for the sole purpose of issuing the
Preferred Securities and the Common Securities and investing the proceeds
thereof in an equivalent amount of 5.5% Convertible Subordinated Debentures due
2028 (the "Convertible Subordinated Debentures") of TXI.
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN INFORMATION RELEVANT TO AN
INVESTMENT IN THE PREFERRED SECURITIES, INCLUDING THE CIRCUMSTANCES DURING WHICH
PAYMENTS OF DISTRIBUTIONS OF THE PREFERRED SECURITIES MAY BE DEFERRED AND THE
RELATED UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF SUCH DEFERRAL.
The SPuRS have been approved for listing on the New York Stock Exchange (the
"NYSE") under the symbol "TXI PrS." See "Underwriting."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions(2)(3) Trust(3)
<S> <C> <C> <C>
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Per Preferred Security $50.00 $50.00
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Total(4) $200,000,000 $200,000,000
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</TABLE>
(1) Plus accrued distributions, if any, from June 5, 1998.
(2) TXI and the Trust have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) In view of the fact that the proceeds of the sale of the SPuRS will be
invested in Convertible Subordinated Debentures, TXI has agreed to pay to
the Underwriters as compensation for their arranging the investment therein
of such proceeds $1.45 per Preferred Security (or $5,800,000 in the
aggregate). See "Underwriting."
(4) The Trust has granted the Underwriters an option exercisable within 30 days
from the date of this Prospectus to purchase up to 600,000 additional SPuRS
on the same terms and conditions set forth above to cover over-allotments,
if any. If all such additional SPuRS are purchased, the total Price to
Public and Proceeds to the Trust will be $230,000,000, and TXI will pay to
the Underwriters as compensation for their arranging the investment therein
of such proceeds $1.45 per Preferred Security (or $6,670,000 in the
aggregate). See "Underwriting."
------------------------
The SPuRS are being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of the certificates
therefor will be made in book-entry form through the book-entry facilities of
The Depository Trust Company on or about June 5, 1998.
SBC WARBURG DILLON READ INC. MERRILL LYNCH & CO.
The date of this Prospectus is June 2, 1998.
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(Cover page continued)
The Convertible Subordinated Debentures will be unsecured obligations of
TXI and will be subordinate and junior in right of payment to certain other
indebtedness of TXI, as described herein.
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of 5.5% of the liquidation amount of $50 per
Preferred Security, accruing from the date of original issuance and payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year, commencing September 30, 1998 (the "Distributions"). The payment of
Distributions out of funds held by the Trust, and payments on liquidation of the
Trust or the redemption of Preferred Securities, as set forth below, are
guaranteed by TXI (the "Preferred Securities Guarantee") to the extent the Trust
has funds available therefor as described under "Description of Preferred
Securities Guarantee." The Preferred Securities Guarantee, when taken together
with TXI's obligations under the Convertible Subordinated Debentures, the
Indenture (as defined herein) and the Trust Agreement (as defined herein),
including its obligations under the Indenture to pay costs, expenses, debts and
liabilities of the Trust (other than with respect to the Trust Securities), will
provide a full and unconditional guarantee of amounts due on the Preferred
Securities. TXI's obligations under the Preferred Securities Guarantee are
subordinate and junior in right of payment to all other liabilities of TXI and
will be pari passu with the most senior preferred stock now or hereafter issued
by TXI and with any guarantee now or hereafter issued by TXI in respect of any
preferred security of any affiliate of TXI.
The distribution rate and the distribution and other payment dates for the
Preferred Securities will correspond to the interest rate and interest and other
payment dates on the Convertible Subordinated Debentures, which will be the sole
asset of the Trust. As a result, if principal or interest is not paid on the
Convertible Subordinated Debentures, no amounts will be paid on the Preferred
Securities. If TXI does not make principal or interest payments on the
Convertible Subordinated Debentures, the Trust will not have sufficient funds to
make Distributions on the Preferred Securities. In such event, the Preferred
Securities Guarantee will not apply to such Distributions until the Trust has
sufficient funds available therefor.
TXI has the right to defer payments of interest on the Convertible
Subordinated Debentures by extending the interest payment period on the
Convertible Subordinated Debentures for up to 20 consecutive quarters (each, an
"Extension Period"), provided that no Extension Period may extend beyond the
maturity of the Convertible Subordinated Debentures. Despite such deferral,
Distributions will continue to accrue with interest thereon (to the extent
permitted by applicable law) at an annual rate of 5.5%, compounded quarterly,
and during any Extension Period holders of Preferred Securities will be required
to include deferred interest income in their gross income for United States
federal income tax purposes in advance of receipt of the cash Distributions with
respect to such deferred interest payments. There could be multiple Extension
Periods of varying lengths throughout the term of the Convertible Subordinated
Debentures. See "Description of the Convertible Subordinated
Debentures -- Option to Extend Interest Payment Period," "Risk Factors --
Possible Adverse Effects from Extension of Interest Payment Period," "Certain
Federal Income Tax Consequences -- Interest Income and Original Issue Discount"
and "Certain Federal Income Tax Consequences -- Premium and Market Discount."
Each Preferred Security is convertible at the option of the holder thereof
into shares of common stock, par value $1.00 per share, of TXI (the "TXI Common
Stock") at a conversion rate of 0.72218 shares of TXI Common Stock for each
Preferred Security (equivalent to a conversion price of $69.235 per share of TXI
Common Stock), subject to adjustment in certain circumstances. The TXI Common
Stock is quoted on the NYSE under the symbol "TXI." On June 2, 1998, the last
reported sale price of the TXI Common Stock on the NYSE Composite Tape was
$56.75.
The Convertible Subordinated Debentures are redeemable by TXI (in whole or
in part) from time to time, on or after June 30, 2001, or at any time in certain
circumstances upon the occurrence of a Tax Event (as defined herein). If TXI
redeems the Convertible Subordinated Debentures, the Trust must redeem Trust
Securities having an aggregate liquidation amount equal to the aggregate
principal amount of the Convertible Subordinated Debentures so redeemed at $50
per Preferred Security plus accrued and unpaid Distributions thereon (the
"Redemption Price") to the date fixed for redemption. See "Description of
Convertible
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Subordinated Debentures -- Mandatory Redemption." The Preferred Securities will
be redeemed upon maturity of the Convertible Subordinated Debentures. The
Convertible Subordinated Debentures mature on June 30, 2028 (such date, as it
may be advanced as described herein, the "Stated Maturity"). In addition, upon
the occurrence of a Special Event (as defined herein) arising from a change in
law or a change in legal interpretation, unless the Convertible Subordinated
Debentures are redeemed in the limited circumstances described herein, the Trust
will be dissolved with the result that the Convertible Subordinated Debentures
will be distributed to the holders of the Trust Securities on a pro rata basis,
in lieu of any cash Distribution. In the case of a Special Event that is a Tax
Event, TXI will have the right in certain circumstances to redeem the
Convertible Subordinated Debentures, which would result in the redemption by the
Trust of the Trust Securities in the same amount on a pro rata basis. If the
Convertible Subordinated Debentures are distributed to the holders of the
Preferred Securities, TXI will use its best efforts to have the Convertible
Subordinated Debentures listed on the New York Stock Exchange or on such other
exchange as the Preferred Securities are then listed. See "Description of the
Preferred Securities -- Special Event Redemption or Distribution" and
"Description of the Convertible Subordinated Debentures."
In the event of the voluntary or involuntary dissolution, winding up or
termination of the Trust, the holders of the Preferred Securities will be
entitled to receive, for each Preferred Security, a liquidation amount of $50
plus accrued and unpaid Distributions thereon (including interest thereon) to
the date of payment, unless in connection with such dissolution, the Convertible
Subordinated Debentures are distributed to the holders of the Preferred
Securities. See "Description of the Preferred Securities -- Liquidation
Distribution Upon Dissolution."
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN THE PREFERRED SECURITIES AND THE IMPOSITION OF A PENALTY BID
DURING AND AFTER THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with (i) Management's Discussion and Analysis of Financial
Condition and Results of Operations and (ii) the Consolidated Financial
Statements and Notes thereto and the more detailed information appearing
elsewhere in this Prospectus or incorporated herein by reference. Unless the
context otherwise requires, references to the "Company" or "TXI" mean Texas
Industries, Inc. and its direct and indirect subsidiaries. Except as otherwise
indicated, all information in this Prospectus assumes that the Underwriters'
over-allotment option is not exercised. All financial and share data in this
Prospectus have been adjusted to give effect to the two-for-one stock split
effected on February 3, 1997. All references to a particular fiscal year refer
to the 12 months ended on May 31 of the year referenced (e.g., fiscal 1997 means
the fiscal year ended May 31, 1997).
THE COMPANY
GENERAL
TXI is a leading supplier of construction materials through two business
segments: cement, aggregate and concrete products (the "CAC" segment); and
structural steel and specialty bar products (the "Steel" segment). The Company
is the largest producer of cement in Texas 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 manufacturer, tool
and oil country goods markets. From fiscal 1994 to fiscal 1997, TXI's net sales
and net income have grown at a compound annual rate of 11% and 43%,
respectively. For the 12 months ended February 28, 1998, the Company generated
$1.1 billion in net sales and $94.3 million in net income.
The Company is the only major North American producer of both cement and
steel. TXI has derived significant benefits therefrom, primarily in lowering
production costs and enhancing productivity through the innovative recycling of
by-products of manufacturing. The Company has extensive operating experience in
both of its business segments. Founded in 1951, the Company 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.
BUSINESS STRATEGY
The Company's business strategy is to grow profitably in both of its
business segments by achieving and maintaining market leadership positions in
desirable markets, capitalizing on innovation in manufacturing processes and
products, being the low cost supplier, pursuing strategic growth opportunities
and preserving financial strength and flexibility in order to capitalize on
these opportunities when they arise.
The key elements of the Company's strategy are:
Achieve and Maintain Market Leadership. The Company strives to be the
number one or two supplier in desirable markets. The Company is:
- The largest producer of cement in Texas and a major cement producer in
California, the two largest cement markets in the U.S.
- The second largest supplier of structural steel products in North
America.
- The largest supplier of light weight steel beams used in manufactured
housing in North America.
- The largest supplier of expanded shale and clay aggregate products west
of the Mississippi River.
- The largest supplier of stone, sand and gravel aggregate products and the
second largest supplier of ready-mix concrete in North Texas.
- The largest supplier of sand and gravel aggregate products and ready-mix
concrete in Louisiana.
3
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Capitalize on Innovation in Manufacturing Processes and Products. The
Company emphasizes the development and improvement of manufacturing process
technologies and the design and marketing of new products. Research and
development of manufacturing processes and products is considered to be every
employee's responsibility at TXI. All employees are empowered to seek and
implement creative ideas to improve operations and results.
- TXI pioneered and is a leader in the manufacture of wide flange beams and
other structural steel products using recycled steel.
- TXI developed and patented near net shape casting, a process which
provides energy and capital cost savings in the making of wide flange
beams and other structural steel products.
- TXI developed and patented the CemStar process, which uses a co-product
from steel-making to increase cement production with little additional
cost. TXI continues to research and refine processes for the recovery and
recycling of waste and the by-products generated by manufacturing
processes.
- TXI continues to develop new, higher-margin products, such as Bantam
Beams and Diamond Pro professional groundskeeping products.
Be the Low Cost Supplier. The Company's focus on market leadership is
accompanied by its determination to drive down production and distribution costs
in order to be the low cost supplier to its customers.
- TXI operates the largest steel shredder in the world, currently supplying
42% of its total steel raw material needs. The shredder enables the
Company to access a continuous source of low cost, unprocessed scrap
steel in order to reduce costs and exposure to increasing prices for
higher grade recycled steel.
- TXI is a leader in substituting alternative fuels for the nonrenewable
fuels typically used in the energy intensive cement manufacturing
process. The Company lowers cement manufacturing costs both by reducing
expenditures for the nonrenewable fuels and by receiving income for the
management of alternative fuels received from third party generators of
such fuels.
Pursue Strategic Growth Opportunities. The Company pursues profitable
growth by building on its business and operational expertise in order to enter
new markets and introduce new products.
- A structural steel facility being constructed in Virginia will combine a
steel shredder, near net shape casting, state-of-the-art steel melting
technology and a proprietary rolling mill design to achieve low
production costs and the widest structural steel product range available
from a single facility.
- The acquisition of Riverside Cement Company ("Riverside") provides TXI
access to California, the largest cement market in the U.S. The Company
intends to implement its CemStar process at Riverside in the near term to
enhance productivity and increase capacity. The Company also intends to
upgrade and modernize Riverside's existing portland cement plant with
higher capacity and more cost efficient equipment in order to move into a
position of leadership in the California regional market.
- TXI intends to increase its Midlothian cement capacity from 1.3 million
to 2.8 million tons per year in order to maintain and enhance its
position as the largest producer of cement in Texas.
- TXI is upgrading its specialty bar products capability to further improve
product mix and increase the breadth of markets addressed.
- TXI has embarked on a program to license its CemStar process to cement
producers throughout the world.
- TXI continues to pursue investments for internal growth and opportunistic
acquisitions in order to build on leadership positions in its stone, sand
and gravel, expanded shale and clay and concrete operations.
Preserve Financial Strength and Flexibility. The Company strives to be
financially positioned to pursue profitable growth opportunities as they arise.
TXI expects that the proceeds from the sale of the Convertible Subordinated
Debentures will enable the Company to maintain its commitment to a strong
financial position and pursue its business strategy on a sound financial basis.
TXI(TM), CemStar (SM), Bantam Beams(TM) and Diamond Pro(TM) are registered
trademarks and service marks of the Company.
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RECENT DEVELOPMENTS
On December 31, 1997, the Company acquired the 15.7% separate public
ownership of Chaparral Steel Company ("Chaparral") consisting of approximately
4.5 million publicly traded shares. The Company agreed to pay approximately
$77.1 million in this transaction, including transaction expenses. With the
acquisition of these shares, TXI's net income will no longer be reduced by the
minority interest.
On December 31, 1997, the Company acquired Riverside, 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. With the
acquisition of Riverside, the Company ranks seventh among all domestic cement
producers and becomes the third largest U.S. publicly traded cement producing
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 production
capacity by approximately 60%. In March 1998, TXI filed for a permit to expand
its Midlothian, Texas cement plant's annual production from 1.3 million to 2.8
million tons, and the Company anticipates upgrading its portland cement plant in
California in the next several years.
The Company's principal executive offices are located at 1341 West
Mockingbird Lane, Dallas, Texas 75247-6913, and its telephone number is (972)
647-6700.
TXI CAPITAL TRUST I
The Trust is a statutory business trust formed under Delaware law pursuant
to the filing of a certificate of trust with the Delaware Secretary of State on
May 26, 1998. The Trust's business is defined in a Trust Agreement, executed by
TXI, as Depositor (the "Depositor"), the Administrative Trustees (as defined
herein) and the Delaware Trustee (as defined herein). The Trust Agreement will
be amended and restated in its entirety (as so amended and restated, the "Trust
Agreement") substantially in the form filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The Trust Agreement will be
qualified as an indenture under the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). Upon issuance of the Preferred Securities, the
purchasers thereof will own all of the Preferred Securities. TXI will acquire
all of the Common Securities in an aggregate liquidation amount equal to 3% of
the total capital of the Trust. The Trust exists for the exclusive purposes of
(i) issuing the Trust Securities representing undivided beneficial interests in
the assets of the Trust, (ii) investing the gross proceeds of the Trust
Securities in the Convertible Subordinated Debentures and (iii) engaging in only
those other activities necessary or incidental thereto.
The Trust's business and affairs will be conducted by trustees appointed by
TXI, as holder of the Common Securities. The duties and obligations of the
trustees will be governed by the Trust Agreement. Pursuant to the Trust
Agreement, there will be three individual trustees (the "Administrative
Trustees"), one property trustee (the "Property Trustee") and one trustee having
its principal place of business or residence in the State of Delaware (the
"Delaware Trustee"). The three Administrative Trustees will be persons who are
employees or officers of, or affiliated with, TXI. The Property Trustee will be
a financial institution which is unaffiliated with TXI and will serve as
property trustee under the Trust Agreement and as indenture trustee for purposes
of the Trust Indenture Act (the "Indenture Trustee"). The First National Bank of
Chicago will act as the Property Trustee and Indenture Trustee until removed or
replaced by the holder of the Common Securities, and also will act as trustee
under the Preferred Securities Guarantee (the "Preferred Guarantee Trustee").
See "Description of the Preferred Securities Guarantee." In certain
circumstances, the holders of a majority of the Preferred Securities will be
entitled to appoint one Administrative Trustee (a "Special Administrative
Trustee"), who need not be an officer or employee of, or otherwise affiliated
with, TXI. See "Description of the Preferred Securities -- Voting Rights."
The Property Trustee will hold title to the Convertible Subordinated
Debentures for the benefit of the holders of the Trust Securities and will have
the power to exercise all rights, powers and privileges under the Indenture (as
defined herein) as the holder of the Convertible Subordinated Debentures. In
addition, the Property Trustee will maintain exclusive control of a segregated
non-interest bearing bank account (the "Property Account") to hold all payments
made in respect of the Convertible Subordinated Debentures for
5
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the benefit of the holders of Trust Securities. The Property Trustee will make
payments of Distributions and payments on liquidation, redemption and otherwise
to the holders of the Trust Securities out of funds from the Property Account.
The Preferred Guarantee Trustee will hold the Preferred Securities Guarantee for
the benefit of the holders of the Preferred Securities. Subject to the right of
the holders of the Preferred Securities to appoint a Special Administrative
Trustee, TXI, as the holder of all the Common Securities, will have the right to
appoint, remove or replace any Administrative Trustee and to increase the number
of Administrative Trustees, provided that the number of Administrative Trustees
shall be at least three. TXI will pay all fees and expenses related to the Trust
and the offering of the Trust Securities. See "Description of the Convertible
Subordinated Debentures -- Miscellaneous."
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are as set forth in the Trust
Agreement, the Delaware Business Trust Act (the "Trust Act") and the Trust
Indenture Act. See "Description of the Preferred Securities."
The office of the Delaware Trustee in the State of Delaware is c/o First
Chicago Delaware Inc., 300 King Street, Wilmington, Delaware 19801. The
principal place of business of the Trust is c/o Texas Industries, Inc., 1341
West Mockingbird Lane, Dallas, Texas 75247-6913 (telephone number (972)
647-6700).
THE OFFERING
Preferred Securities
Offered.................... 5.5% Shared Preference Redeemable Securities
evidencing preferred undivided beneficial interests
in the assets of the Trust.
Distributions.............. Holders of the Preferred Securities are entitled to
receive cumulative cash distributions at an annual
rate of 5.5% of the liquidation amount of $50 per
Preferred Security, accruing from the date of
original issuance and payable quarterly in arrears
on March 31, June 30, September 30 and December 31
of each year commencing on September 30, 1998. The
distribution rate and the distribution and other
payment dates for the Preferred Securities will
correspond to the interest rate and interest and
other payment dates on the Convertible Subordinated
Debentures, which will be the sole asset of the
Trust. As a result, if principal or interest is not
paid on the Convertible Subordinated Debentures, no
payments will be paid on the Preferred Securities.
See "Description of the Preferred Securities."
Liquidation Preference..... $50 per Preferred Security, and all accrued and
unpaid Distributions.
Convertible Subordinated
Debentures............... The Trust will invest the proceeds from the
issuance of the Preferred Securities and Common
Securities in an equivalent amount of 5.5%
Convertible Subordinated Debentures due 2028 of
TXI. The Convertible Subordinated Debentures will
be subordinate and junior in right of payment to
all Senior Indebtedness (as defined herein) of TXI.
In addition, because TXI is a holding company, its
obligations under the Convertible Subordinated
Debentures will be effectively subordinated to all
existing and future liabilities of its
subsidiaries. See "Description of the Convertible
Subordinated Debentures -- Subordination."
Preferred Securities
Guarantee.................. Payment of Distributions out of funds held by the
Trust and payments on liquidation of the Trust or
the redemption of Preferred Securities are
guaranteed by TXI to the extent the Trust has funds
available therefor. If TXI does not make principal
or interest payments on the Convertible
Subordinated Debentures, the Trust will not have
sufficient funds to make Distributions on the
Preferred Securities, in which event the Preferred
Securities Guarantee will not apply to such
Distributions until
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the Trust has sufficient funds available therefor.
See "Description of the Preferred Securities
Guarantee" and "Effect of Obligations Under the
Convertible Subordinated Debentures and the
Preferred Securities Guarantee." The obligations of
TXI under the Preferred Securities Guarantee are
subordinate and junior in right of payment to all
other liabilities of TXI and will be pari passu
with the most senior preferred stock now or
hereafter issued by TXI and with any guarantee now
or hereafter issued by TXI in respect of any
preferred security of any affiliate of TXI. In
addition, because TXI is a holding company, its
obligations under the Preferred Securities
Guarantee are effectively subordinated to all
existing and future liabilities of its
subsidiaries. The Preferred Securities Guarantee,
when taken together with TXI's obligations under
the Convertible Subordinated Debentures, the
Indenture and the Trust Agreement, including its
obligations to pay costs, expenses, debts and
liabilities of the Trust (other than with respect
to the Trust Securities), will provide a full and
unconditional guarantee of amounts due on the
Preferred Securities. See "Risk
Factors -- Subordination of Preferred Securities
Guarantee and Convertible Subordinated Debentures"
and "Description of the Preferred Securities
Guarantee."
Option to Extend Interest
Payment Period........... TXI has the right at any time, so long as no
Indenture Event of Default (as herein defined) has
occurred and is continuing, to defer payment of
interest on the Convertible Subordinated Debentures
by extending the interest payment period on the
Convertible Subordinated Debentures for up to 20
consecutive quarters. If interest payments on the
Convertible Subordinated Debentures are so
deferred, Distributions on the Preferred Securities
also will be deferred. During any deferral,
Distributions will continue to accrue with interest
thereon (to the extent permitted by law) as
described herein. There could be multiple Extension
Periods of varying lengths throughout the term of
the Convertible Subordinated Debentures. During an
Extension Period, holders of Preferred Securities
will be required to include deferred interest
income in their gross income in advance of receipt
of the cash Distributions attributable thereto. See
"Description of the Convertible Subordinated
Debentures -- Option to Extend Interest Payment
Period," "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue
Discount" and "Certain Federal Income Tax
Consequences -- Premium and Market Discount."
Conversion into TXI Common
Stock.................... Each Preferred Security is convertible in the
manner described below at the option of the holder,
at any time, into shares of TXI Common Stock at the
rate of 0.72218 shares of TXI Common Stock for each
Preferred Security (equivalent to a conversion
price of $69.235 per share of TXI Common Stock),
subject to adjustment in certain circumstances. A
holder of Preferred Securities wishing to exercise
its conversion right shall surrender any or all of
such Preferred Securities, together with an
irrevocable conversion notice, to the paying,
conversion and exchange agent acting on behalf of
the holders of Preferred Securities (the
"Conversion Agent") which shall exchange the
Preferred Securities for a portion (equal to the
aggregate liquidation preference of the Preferred
Securities being so converted) of the Convertible
Subordinated Debentures held by the Trust and
immediately convert such Convertible Subordinated
Debentures into TXI Common Stock. A holder
generally
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<PAGE> 10
will not recognize taxable gain or loss upon the
exchange through the Conversion Agent of the
Preferred Securities for a proportionate share of
the Convertible Subordinated Debentures, followed
immediately thereafter by the conversion of the
Convertible Subordinated Debentures into TXI Common
Stock. See "Certain Federal Income Tax
Consequences -- Conversion of Preferred Securities
Into TXI Common Stock."
Redemption................. The Convertible Subordinated Debentures are
redeemable by TXI (in whole or in part) from time
to time, on or after June 30, 2001, or at any time
upon the occurrence of a Tax Event. If the
Convertible Subordinated Debentures are redeemed,
the Trust must redeem Preferred Securities having
an aggregate liquidation amount equal to the
aggregate principal amount of the Convertible
Subordinated Debentures so redeemed. The Preferred
Securities will be redeemed upon maturity of the
Convertible Subordinated Debentures which will
occur on June 30, 2028. See "Description of the
Preferred Securities -- Mandatory Redemption."
Voting Rights.............. Generally, the holders of the Preferred Securities
will not have any voting rights. Subject to certain
conditions, the holders of a majority in aggregate
liquidation amount of the Preferred Securities have
the right to direct the time, method and place of
conducting any proceeding for any remedy available
to the Property Trustee, or to direct the exercise
of any trust or power conferred upon the Property
Trustee under the Trust Agreement including the
right to direct the Property Trustee, as holder of
the Convertible Subordinated Debentures, to (i)
direct the time, method or place of conducting any
proceeding for any remedy available to the
Indenture Trustee or exercise any trust or power
conferred on the Indenture Trustee with respect to
the Convertible Subordinated Debentures: (ii) waive
any past Indenture Event of Default that is
available under the Indenture; (iii) exercise any
right to rescind or annul a declaration that the
principal of all the Convertible Subordinated
Debentures shall be due and payable; or (iv)
consent to any amendment, modification or
termination of the Indenture or the Convertible
Subordinated Debentures where such consent shall be
required. See "Description of the Preferred
Securities -- Voting Rights."
Conditional Right to
Advance Maturity........... If a Tax Event occurs, then TXI will have the
right, prior to the dissolution of the Trust, to
advance the Stated Maturity of the Convertible
Subordinated Debentures to the minimum extent
required in order to allow for the payments of
interest in respect of the Convertible Subordinated
Debentures to continue to be tax deductible, but in
no event shall the resulting maturity of the
Convertible Subordinated Debentures be less than 15
years from the date of original issuance thereof.
The Stated Maturity shall be advanced only if, in
the opinion of counsel to TXI experienced in such
matters, (i) after advancing the Stated Maturity,
interest paid on the Convertible Subordinated
Debentures will be deductible for United States
federal income tax purposes and (ii) advancing the
Stated Maturity will not result in a taxable event
to holders of the Preferred Securities. See
"Description of the Convertible Subordinated
Debentures -- General" and "Description of the
Convertible Subordinated Debentures -- Mandatory
Redemption."
8
<PAGE> 11
Distribution of Convertible
Subordinated
Debentures............... TXI, as the holder of the outstanding Common
Securities of the Trust, has the right, exercisable
at any time, to terminate the Trust and, after
satisfaction of the liabilities of the Trust to
creditors, to cause the Convertible Subordinated
Debentures to be distributed to the holders of the
Preferred Securities in liquidation of the Trust.
See "Description of Convertible Subordinated
Debentures."
9
<PAGE> 12
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ENDED MAY 31, FEBRUARY 28,
------------------------------ -------------------------
1995 1996 1997 1997 1998
-------- -------- -------- ---------- ------------
(IN THOUSANDS EXCEPT DATA PER COMMON SHARE)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales.................................... $830,526 $967,449 $973,824 $ 696,936 $ 861,168
Costs and expenses (income)
Cost of products sold...................... 681,824 756,715 767,030 554,956 683,116
Selling, general and administrative........ 58,275 68,852 76,535 56,006 67,798
Interest................................... 20,117 19,960 18,885 14,165 14,418
Other income............................... (7,571) (13,119) (11,848) (7,169) (10,603)
-------- -------- -------- ---------- ----------
752,645 832,408 850,602 617,958 754,729
-------- -------- -------- ---------- ----------
Income before the following items............ 77,881 135,041 123,222 79,978 106,439
Income taxes................................. 25,700 47,256 41,189 26,767 35,252
-------- -------- -------- ---------- ----------
52,181 87,785 82,033 52,211 71,187
Minority interest in Chaparral(1)............ (4,164) (7,831) (6,559) (4,298) (4,400)
-------- -------- -------- ---------- ----------
Net income................................... $ 48,017 $ 79,954 $ 75,474 $ 47,913 $ 66,787
======== ======== ======== ========== ==========
PER SHARE DATA:
Basic
Average common shares...................... 24,567 22,203 21,751 22,012 21,066
Net income per common share................ $ 1.96 $ 3.61 $ 3.48 $ 2.18 $ 3.18
======== ======== ======== ========== ==========
Diluted
Average common shares...................... 24,817 22,682 22,163 22,457 21,717
Net income per common share................ $ 1.94 $ 3.53 $ 3.42 $ 2.14 $ 3.08
======== ======== ======== ========== ==========
Cash dividends per common share.............. $ 0.15 $ 0.20 $ 0.25 $ 0.18 $ 0.23
OTHER DATA:
EBITDA(2).................................... $147,340 $204,281 $196,016 $ 134,122 $ 165,858
Capital expenditures......................... 48,751 79,300 85,188 65,262 344,335
Long-term debt to total capitalization (at
end of
period).................................... 35.1% 27.6% 28.0% 30.3% 41.6%
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28,
MAY 31, 1998
------------------------------ ------------
1995 1996 1997 ACTUAL
-------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Net working capital.......................... $187,603 $219,345 $242,994 $ 221,532
Total assets................................. 753,055 801,063 847,923 1,117,368
Long-term debt............................... 185,274 160,209 176,056 369,404
Shareholders' equity......................... 343,109 420,022 452,811 517,549
</TABLE>
- ---------------
(1) On December 31, 1997, TXI acquired the 15.7% in Chaparral previously held by
public shareholders.
(2) EBITDA is earnings before interest, income taxes, depreciation and
amortization. EBITDA should not be considered as an alternative to income
from operations or cash flow from operating activities (each determined in
accordance with generally accepted accounting principles).
10
<PAGE> 13
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Preferred Securities offered by this Prospectus. Certain statements contained
hereunder under "Prospectus Summary," "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business" or
contained in the documents incorporated herein by reference, including those
concerning the Company's strategy and growth plans, contain certain
forward-looking statements concerning the Company's operations, economic
performance and financial condition. Because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause such
differences include, but are not limited to, those discussed below.
RISKS RELATING TO THE PREFERRED SECURITIES
Subordination of Preferred Securities Guarantee and Convertible Subordinated
Debentures
TXI's obligations under the Preferred Securities Guarantee are subordinate
and junior in right of payment to all liabilities of TXI and will be pari passu
with the most senior preferred stock now or hereafter issued by TXI and with any
guarantee now or hereafter issued by TXI in respect of any preferred securities
of any affiliate of TXI. The obligations of TXI under the Convertible
Subordinated Debentures are subordinate and junior in right of payment to all
present and future Senior Indebtedness of TXI. At February 28, 1998, Senior
Indebtedness of TXI aggregated approximately $382.8 million. In addition,
because TXI is a holding company, its obligations under the Preferred Securities
Guarantee and the Convertible Subordinated Debentures will be effectively
subordinated to all existing and future liabilities of its subsidiaries. There
are no terms in the Preferred Securities, the Convertible Subordinated
Debentures or the Preferred Securities Guarantee that limit TXI's ability to
incur additional indebtedness, including indebtedness that ranks senior to the
Convertible Subordinated Debentures or the Preferred Securities Guarantee. See
"Description of the Preferred Securities Guarantee" and "Description of the
Convertible Subordinated Debentures -- Subordination."
Limitation of Rights under the Preferred Securities Guarantee
The Preferred Securities Guarantee guarantees to the holders of the
Preferred Securities the payment of: (i) any accrued and unpaid Distributions
that are required to be paid on the Preferred Securities, to the extent the
Trust shall have funds available therefor, (ii) the Redemption Price, including
all accrued and unpaid Distributions with respect to Preferred Securities called
for redemption by the Trust, to the extent the Trust has funds available
therefor; and (iii) upon a voluntary or involuntary dissolution, winding-up or
termination of the Trust (other than in connection with the distribution of
Convertible Subordinated Debentures to the holders of Preferred Securities or a
redemption of all of the Preferred Securities), the lesser of (a) the aggregate
of the liquidation amount and all accrued and unpaid Distributions on the
Preferred Securities to the date of payment, to the extent the Trust has funds
available therefor and (b) the amount of assets of the Trust remaining available
for distribution to holders of the Preferred Securities in liquidation of the
Trust. The holders of a majority in liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Preferred Guarantee Trustee or to
direct the exercise of any trust or power conferred upon the Preferred Guarantee
Trustee under the Preferred Securities Guarantee. Any holder of Preferred
Securities may institute a legal proceeding directly against TXI to enforce such
holder's rights under the Preferred Securities Guarantee, without first
instituting a legal proceeding against the Trust, the Preferred Guarantee
Trustee or any other person or entity. If TXI were to default in its obligation
to pay amounts payable on the Convertible Subordinated Debentures, the Trust
would lack available funds for the payment of Distributions or amounts payable
on redemption of the Preferred Securities or otherwise, and in such event
holders of the Preferred Securities would not be able to rely upon the Preferred
Securities Guarantee for payment of such amounts. Instead, holders of the
Preferred Securities would rely on the enforcement by the Property Trustee of
its rights as registered holder of the Convertible Subordinated Debentures
against TXI pursuant to the terms of the Convertible Subordinated Debentures and
may also vote to appoint a Special Administrative Trustee, who shall have the
same rights,
11
<PAGE> 14
powers and privileges as the other Administrative Trustees. If the Property
Trustee fails to enforce its rights under the Convertible Subordinated
Debentures, a holder of Preferred Securities may institute a legal proceeding
directly against TXI to enforce the Property Trustee's rights under the
Convertible Subordinated Debentures without first instituting any legal
proceeding against the Property Trustee or any other person or entity, including
the Trust. Notwithstanding the foregoing, if a Trust Agreement Event of Default
has occurred and is continuing and such event is attributable to the failure of
TXI to pay interest or principal on the Convertible Subordinated Debentures on
the date such interest or principal is otherwise payable (or in the case of
redemption, the redemption date), then a holder of Preferred Securities may
directly institute a proceeding for enforcement of payment to such holder of the
principal of or interest on the Convertible Subordinated Debentures having a
principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such holder on or after the respective due date specified in the
Convertible Subordinated Debentures. See "Description of the Preferred
Securities Guarantee -- Events of Default" and "Description of the Preferred
Securities Guarantee -- Status of the Preferred Securities Guarantee" and
"Description of the Convertible Subordinated Debentures -- Subordination." The
Trust Agreement provides that each holder of Preferred Securities by acceptance
thereof agrees to the provisions of the Preferred Securities Guarantee and the
Indenture.
Enforcement of Certain Rights by Holders of Preferred Securities
If (i) the Trust fails to pay Distributions in full on the Preferred
Securities for six consecutive quarterly distribution periods or (ii) a Trust
Agreement Event of Default occurs and is continuing, then the holders of
Preferred Securities would rely on the enforcement by the Property Trustee of
its rights against TXI as a holder of the Convertible Subordinated Debentures.
In addition, the holders of a majority in aggregate liquidation amount of the
Preferred Securities will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee or to
direct the exercise of any trust or power conferred upon the Property Trustee
under the Trust Agreement, including the right to direct the Property Trustee to
exercise the remedies available to it as a holder of the Convertible
Subordinated Debentures. If the Property Trustee fails to enforce its rights
under the Convertible Subordinated Debentures, a holder of Preferred Securities
may institute a legal proceeding directly against TXI to enforce the Property
Trustee's rights under the Convertible Subordinated Debentures without first
instituting any legal proceeding against the Property Trustee or any other
person or entity, including the Trust. Notwithstanding the foregoing, if a Trust
Agreement Event of Default has occurred and is continuing and such event is
attributable to the failure of TXI to pay interest or principal on the
Convertible Subordinated Debentures on the date such interest or principal is
otherwise payable (or in the case of redemption, the redemption date), then a
holder of Preferred Securities may directly institute a proceeding for
enforcement of payment to such holder of the principal of or interest on the
Convertible Subordinated Debentures having a principal amount equal to the
aggregate liquidation amount of the Preferred Securities of such holder on or
after the respective due date specified in the Convertible Subordinated
Debentures. Upon the occurrence of any of the events described in clauses (i) or
(ii) above, the holders of the Preferred Securities also will be entitled, by
majority vote, to appoint a Special Administrative Trustee, who shall have the
same rights, powers and privileges as the other Administrative Trustees. See
"Description of the Preferred Securities -- Voting Rights" and "Description of
the Preferred Securities Guarantee -- Events of Default."
Possible Adverse Effects From Extension of Interest Payment Period
TXI has the right under the Indenture to defer payments of interest on the
Convertible Subordinated Debentures by extending the interest payment period at
any time, and from time to time, on the Convertible Subordinated Debentures. As
a consequence of such an extension, quarterly distributions on the Preferred
Securities would be deferred (but despite such deferral would continue to accrue
with interest thereon compounded quarterly) by the Trust during any such
extended interest payment period. Such right to extend the interest payment
period for the Convertible Subordinated Debentures is limited to a period not
exceeding 20 consecutive quarters. In the event that TXI exercises this right to
defer payments of interest, then TXI will not and shall not permit any
subsidiary to, (i) declare or pay any dividends or distributions on or redeem,
purchase, acquire or make a liquidation payment with respect to, any of TXI's
capital stock, (ii) make any
12
<PAGE> 15
payment of principal of, premium, if any, or interest on, or repay, repurchase
or redeem any debt security of TXI that ranks pari passu with or junior in
interest to the Convertible Subordinated Debentures or (iii) make any guarantee
payments with respect to any guarantee by TXI of the debt securities of any
subsidiary if such guarantee ranks pari passu with or junior in interest to the
Convertible Subordinated Debentures (other than (a) dividends or distributions
in TXI's capital stock, (b) any declaration of a dividend in connection with the
implementation of a Rights Plan (as defined in the Indenture) or the redemption
or repurchase of any rights distributed pursuant to a Rights Plan, (c) payments
under the Preferred Securities Guarantee and (d) purchases of TXI Common Stock
related to the issuance of TXI Common Stock or rights under any of TXI's benefit
plans for its directors, officers or employees, related to the issuance of TXI
Common Stock or rights under a dividend reinvestment and stock purchase plan or
related to the issuance of TXI Common Stock (or securities convertible or
exchangeable for TXI Common Stock) as consideration in an acquisition
transaction that was entered into prior to the commencement of such Extension
Period). Prior to the termination of any such Extension Period, TXI may further
defer payments of interest by extending the interest payment period, provided
that such Extension Period, together with all such previous and further
extensions thereof, may not exceed 20 consecutive quarters and provided further
that no Extension Period may extend beyond the maturity of the Convertible
Subordinated Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, TXI may select a new Extension Period, subject
to the above requirements. See "Description of the Preferred
Securities -- Distributions" and "Description of the Convertible Subordinated
Debentures -- Option to Extend Interest Payment Period."
Should TXI exercise its rights to defer payments of interest by extending
the interest payment period, each holder of Preferred Securities will continue
to accrue income (as original issue discount) for United States federal income
tax purposes in respect of the deferred interest allocable to its Preferred
Securities, which will be allocated but not distributed to holders of record of
Preferred Securities. As a result, holders of Preferred Securities will
recognize income for United States federal income tax purposes in advance of the
receipt of cash and will not receive the cash from the Trust related to such
income if such holder disposes of its Preferred Securities prior to the record
date for the date on which distributions of such amounts are made. TXI has no
current intention of exercising its right to defer payments of interest by
extending the interest payment period on the Convertible Subordinated
Debentures. Should TXI determine to exercise such right in the future, however,
the market price of the Preferred Securities is likely to be adversely affected.
A holder that disposes of its Preferred Securities during an Extension Period,
therefore, might not receive the same return on its investment as a holder that
continues to hold its Preferred Securities. In addition, as a result of the
existence of TXI's right to defer interest payments, the market price of the
Preferred Securities (which represent an undivided beneficial interest in the
Convertible Subordinated Debentures) may be more volatile than other securities
on which original issue discount accrues that do not have such rights. See
"Certain Federal Income Tax Consequences -- Interest Income and Original Issue
Discount" and "Certain Federal Income Tax Consequences -- Premium and Market
Discount."
Possible Changes to United States Tax Laws or Adverse Tax Decisions; Possible
Tax Event
Certain legislative proposals made in 1996 and 1997, if they had been
enacted, would have adversely affected the ability of the Company to deduct
interest paid on the Convertible Subordinated Debentures. Although these
proposals were not enacted, there is no assurance that after the date hereof
legislation adversely affecting the ability of the Company to deduct the
interest payable on the Convertible Subordinated Debentures will not be enacted.
If adverse legislation is enacted in the future and applied to the Convertible
Subordinated Debentures, such legislation could give rise to a Tax Event which
could, in certain circumstances, require the dissolution of the Trust or permit
TXI to redeem the Convertible Subordinated Debentures or advance the Stated
Maturity of the Convertible Subordinated Debentures.
In addition, the Internal Revenue Service ("Service") recently asserted
that interest payable on a security with characteristics and issued in
circumstances similar to the characteristics and issuance of the Convertible
Subordinated Debentures was not deductible for United States federal income tax
purposes. The taxpayer in that case has filed a petition in the United States
Tax Court challenging the IRS's position on this matter. If this matter is
litigated and the Tax Court sustains the Service's position, such judicial
decision could
13
<PAGE> 16
give rise to a Tax Event which could, in certain circumstances, require the
dissolution of the Trust or permit TXI to redeem the Convertible Subordinated
Debentures.
Because of the possibility of adverse future legislation, case law, and/or
IRS positions, there is no assurance that a Tax Event will not occur. See
"Description of the Convertible Subordinated Debentures -- Possible Tax
Legislation or Adverse Tax Decisions" and "Certain Federal Income Tax
Consequences -- Possible Tax Legislation or Adverse Tax Decisions."
Effect of Special Event Redemption or Distribution
Upon the occurrence of a Special Event, the Trust will be dissolved, except
in the limited circumstances described below, with the result that, after
satisfaction of the liabilities of the Trust to creditors, the Convertible
Subordinated Debentures would be distributed to the holders of the Trust
Securities in connection with the liquidation of the Trust. In the case of a
Special Event that is a Tax Event, in certain circumstances TXI will have the
right to redeem the Convertible Subordinated Debentures, in whole or in part, in
which event the Trust will redeem the Trust Securities on a pro rata basis to
the same extent as the Convertible Subordinated Debentures are redeemed. See
"Description of the Preferred Securities -- Special Event Redemption or
Distribution" and "Certain Federal Income Tax Consequences."
Under current United States federal income tax law, a distribution of
Convertible Subordinated Debentures upon the dissolution of the Trust would not
be a taxable event to holders of the Preferred Securities. Upon the occurrence
of a Tax Event, however, a dissolution of the Trust in which holders of the
Preferred Securities receive cash would be a taxable event to such holders. See
"Certain Federal Income Tax Consequences -- Receipt of Convertible Subordinated
Debentures Upon Liquidation of the Trust" and "-- Sale of Preferred Securities
and Redemption of Convertible Subordinated Debentures."
There can be no assurance as to the market prices for the Preferred
Securities or the Convertible Subordinated Debentures that may be distributed in
exchange for Preferred Securities if a dissolution or liquidation of the Trust
were to occur. Accordingly, the Preferred Securities that an investor may
purchase, or the Convertible Subordinated Debentures that the investor may
receive on dissolution and liquidation of the Trust, may trade at a discount to
the price that the investor paid to purchase the Preferred Securities offered
hereby. Because holders of Preferred Securities may receive Convertible
Subordinated Debentures upon the occurrence of a Special Event, prospective
purchasers of Preferred Securities are also making an investment decision with
regard to the Convertible Subordinated Debentures and should carefully review
all the information regarding the Convertible Subordinated Debentures contained
herein. See "Description of the Preferred Securities -- Special Event Redemption
or Distribution" and "Description of the Convertible Subordinated Debentures."
Conditional Right to Advance Maturity
If a Tax Event occurs, then TXI will have the right, prior to the
dissolution of the Trust, to advance the Stated Maturity of the Convertible
Subordinated Debentures to the minimum extent required in order to allow for the
payments of interest in respect of the Convertible Subordinated Debentures to
continue to be tax deductible, but in no event shall the resulting maturity of
the Convertible Subordinated Debentures be less than 15 years from the date of
original issuance thereof. The Stated Maturity shall be advanced only if, in the
opinion of counsel to TXI experienced in such matters, (i) after advancing the
Stated Maturity, interest paid on the Convertible Subordinated Debentures will
be deductible for United States federal income tax purposes and (ii) advancing
the Stated Maturity will not result in a taxable event to holders of the
Preferred Securities. See "Description of the Convertible Subordinated
Debentures -- General" and "Description of the Convertible Subordinated
Debentures -- Mandatory Redemption."
14
<PAGE> 17
Limited Voting Rights
Holders of Preferred Securities will have limited voting rights and, except
for the rights of holders of Preferred Securities to appoint a Special
Administrative Trustee upon the occurrence of certain events described herein,
will not be entitled to vote to appoint, remove or replace, or to increase or
decrease the number of, trustees, which voting rights are vested exclusively in
the holder of the Common Securities. See "Description of the Preferred
Securities -- Voting Rights."
Trading Price of Preferred Securities; Tax Consequences upon Disposition
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Convertible Subordinated Debentures. A holder that uses the accrual method of
accounting for tax purposes (and a cash method holder, if the Convertible
Subordinated Debentures are deemed to have been issued with OID, as defined
herein) and that disposes of Preferred Securities between record dates for
payments of distributions thereon will be required to include accrued but unpaid
interest on the Convertible Subordinated Debentures through the date of
disposition in income as ordinary income, and to add such amount to the adjusted
tax basis in the holder's pro rata share of the underlying Convertible
Subordinated Debentures deemed to be disposed. To the extent that the selling
price (which may not fully reflect the value of the accrued but unpaid interest)
is less then the holder's adjusted tax basis (which will include accrued but
unpaid interest), a holder will recognize a capital loss. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes. See "Certain Federal Tax
Consequences -- Sale of Preferred Securities and Redemption of Convertible
Subordinated Debentures."
RISKS RELATING TO THE COMPANY
Competition
All of the markets in which the Company participates are highly
competitive. The Company competes in each of its cement, aggregate and concrete
products markets with several other suppliers of these products. The Company
competes in its steel markets with national and international producers of steel
products. Some of the Company's competitors are larger, have greater financial
resources and have less financial leverage than the Company. The Company
competes on the basis of, among other things, competitive prices, prompt
availability, customer service and quality products.
Sensitivity to Economic Cycles; Seasonality
A significant percentage of the Company's sales of both CAC and Steel
products is attributable to the level of construction activity, which is
affected by such cyclical factors as general economic conditions, interest
rates, inflation, consumer spending habits and employment. The Company's CAC
operating profit is generally lower in its fiscal quarter ended February 28 as
compared to the other three fiscal quarters due to the impact of winter weather
on construction activity. Steel results in the fiscal quarter ended August 31
are affected by the Company's scheduled summer shut-down to refurbish its steel
production facilities.
Achieving Growth Strategy; Ability to Complete Acquisitions
The Company's ability to implement its growth strategy successfully is
dependent on a number of factors including competition, the availability of
capital and general economic conditions. In addition, a significant element of
the Company's operating strategy is to pursue strategic acquisitions that either
expand or complement the Company's products or markets or to build new or expand
existing production facilities. There can be no assurance that the Company will
be able to identify and make acquisitions on acceptable terms, that the Company
will be able to obtain the permits necessary to build new or expand existing
production facilities, that the Company will be able to obtain financing for
such acquisitions or expansions on acceptable terms or that the Company will be
able successfully to integrate such acquisitions into existing operations.
15
<PAGE> 18
Availability and Pricing of Raw Materials
The Company is dependent upon purchased scrap steel as a raw material and
upon energy sources, including electricity and fossil fuels. Accordingly, the
Company's results of operations and financial condition have in the past been,
and may again in the future be, adversely affected by increases in raw material
costs or energy costs, or their lack of availability.
Status of Certain Tariffs
A group of domestic cement producers, including the Company, filed
antidumping petitions which have resulted in the imposition of significant
antidumping duty cash deposits on grey portland cement and clinker imported from
Mexico and Japan. In addition, the U.S. Department of Commerce has signed
agreements with the Venezuelan Government and Venezuelan cement producers, which
are designed to eliminate the dumping and illegal subsidization of grey portland
cement and clinker from Venezuela. On an annual basis, the antidumping duties
are subject to review by the Department of Commerce to determine whether the
current antidumping duty deposit rates should be adjusted upward or downward.
In 1995, the Antidumping Code of the General Agreement on Tariffs and Trade
was substantially altered pursuant to the Uruguay Round of multilateral trade
negotiations. U.S. legislation approving and implementing the Uruguay Round
agreements requires the Department of Commerce and the U.S. International Trade
Commission to conduct "sunset" reviews of all outstanding antidumping and
countervailing duty orders and suspension agreements, including the antidumping
orders against grey portland cement and clinker from Mexico and Japan and the
suspension agreements on grey portland cement and clinker from Venezuela, to
determine whether they should be terminated or remain in effect. The sunset
reviews of the cement orders and suspension agreements are scheduled to begin no
later than August 1999 and conclude within one year (i.e., August 2000), or, if
extended, to conclude not later than February 2001. There is no experience as
yet on sunset reviews; therefore, it is difficult to assess the likelihood that
the orders or suspension agreements will be terminated. A substantial reduction
or elimination of the existing antidumping duties could adversely affect the
Company's results of operations. The exact net impact, if any, on the Company is
impossible to determine at this time.
Impact of Environmental Laws
The operations of the Company and its subsidiaries are subject to various
federal and state environmental laws and regulations ("Environmental Laws" or
"Laws"). 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 and disposal. Three major areas regulated by these authorities are air
quality, waste management and water quality.
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 laws and regulations applicable to its existing facilities.
There can be no assurance, however, that future changes in permit limitations
and emission standards will not adversely affect the Company's ability to build
new or expand existing production facilities.
Many of the raw materials, products and by-products associated with the
operation of any industrial facility, including those for the production of
steel, cement or concrete products, contain chemical elements or compounds that
can be designated as hazardous substances. Such raw materials, products and
by-products may also exhibit characteristics that result in their being
classified as a hazardous substance or waste. Some examples are the metals
present in cement kiln dust ("CKD"), the ignitability of the fuels derived from
solid waste which the Company uses as a primary or supplementary fuel substitute
for nonrenewable coal and natural gas to fire its cement kilns and the
electric-arc furnace dust ("EAF dust") generated by the Company's steel
facility.
16
<PAGE> 19
Currently, CKD is exempt from hazardous waste management standards under
the Resource Conservation and Recovery Act ("RCRA") if certain tests are
satisfied. TXI has demonstrated that the CKD it generates satisfies these tests.
However, the EPA plans to apply site-specific waste-management standards to CKD
under the Clean Air Act and RCRA to assure that the environment is protected.
The Company has established operating practices and is implementing waste
management programs which it believes will comply with these anticipated
standards, but there can be no assurances that such practices and programs will
continue to comply in the future.
The Company's utilization of hazardous materials such as gasoline, acids,
solvents and chemicals as well as the materials that have been designated or
characterized as hazardous waste by the EPA which the Company uses for energy
recovery, has necessitated that the Company familiarize its work force with the
more exacting requirements of applicable Environmental Laws and regulations with
respect to human health and the environment related to these activities. The
failure to observe these exacting requirements could jeopardize the Company's
hazardous waste management permits and, under certain circumstances, expose the
Company to significant liabilities and costs of cleaning up releases of
hazardous substances into the environment or claims by employees or others
alleging exposure to hazardous substances.
The Company's steel facility generates, in the same manner as other like
steel plants in the industry, EAF dust that contains lead, chromium and cadmium.
The EPA has listed this EAF dust, which is collected in baghouses, as 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 Company 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 subjective and therefore
not quantifiable, presently not 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 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 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 and there can be no assurance
that the Company will not incur material liability in connection with possible
claims related to the Company's operations and properties under Environmental
Laws.
17
<PAGE> 20
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for TXI and subsidiaries for the
periods indicated below was as follows:
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
FISCAL YEARS ENDED MAY 31, FEBRUARY 28,
-------------------------------- -------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges........... 1.01 2.37 4.05 6.00 5.70 5.10 5.72
</TABLE>
For purposes of calculating the above ratios, earnings consist of net
income to which has been added income taxes and fixed charges. Fixed charges
consist of interest on all indebtedness (including capitalized interests) and
one-third of rental expense (approximate portion representing interest).
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated with TXI's
financial statements, with the Preferred Securities shown as "Company-obligated
mandatorily redeemable preferred securities of subsidiaries holding solely
company subordinated notes."
USE OF PROCEEDS
The proceeds of the sale of the Preferred Securities will be invested by
the Trust in the Convertible Subordinated Debentures of TXI. TXI will use the
net proceeds from the sale of such Convertible Subordinated Debentures for
general corporate purposes, including repayment of outstanding indebtedness
under TXI's revolving credit facility. The revolving credit facility matures on
December 18, 2002, and provides for a fluctuating interest rate per annum based
upon LIBOR. The average interest rate for the 12-month period ended February 28,
1998 was 6.55%. As of June 2, 1998, TXI had drawn approximately $74 million
under the revolving credit facility, the majority of which was used to fund
capital expenditures, including the construction of the Virginia steel facility.
Repayment of this indebtedness will not reduce the maximum amount that TXI from
time to time may borrow under the revolving credit facility.
18
<PAGE> 21
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock is traded on the NYSE under the symbol "TXI."
The following table sets forth for the fiscal year periods indicated, the
intra-day high and low sale prices per share of the Common Stock on the NYSE,
and quarterly cash dividends paid:
<TABLE>
<CAPTION>
PRICE RANGE
------------- DIVIDENDS
HIGH LOW PAID
---- --- ---------
<S> <C> <C> <C>
FISCAL YEAR 1996
First Quarter (ended August 31, 1995).................. $24 7/8 $17 13/16 $.050
Second Quarter (ended November 30, 1995)............... 27 5/8 23 1/4 .050
Third Quarter (ended February 29, 1996)................ 31 1/8 25 1/8 .050
Fourth Quarter (ended May 31, 1996).................... 34 5/8 30 1/4 .050
FISCAL YEAR 1997
First Quarter (ended August 31, 1996).................. $34 5/16 $31 5/16 $.050
Second Quarter (ended November 30, 1996)............... 33 7/16 26 15/16 .050
Third Quarter (ended February 28, 1997)................ 29 5/16 24 1/8 .075
Fourth Quarter (ended May 31, 1997).................... 29 1/4 20 7/8 .075
FISCAL YEAR 1998
First Quarter (ended August 31, 1997).................. $34 11/16 $23 5/8 $.075
Second Quarter (ended November 30, 1997)............... 52 33 5/16 .075
Third Quarter (ended February 28, 1998)................ 58 42 1/2 .075
Fourth Quarter (ended May 31, 1998).................... 68 1/8 50 3/4 .075
FISCAL YEAR 1999
First Quarter (through June 2, 1998)................... $58 15/16 $55 1/16 $ --
</TABLE>
The last reported sales price per share of the Common Stock on the NYSE
Composite Tape on June 2, 1998 was $56.75. As of February 28, 1998, there were
approximately 3,650 holders of record of the Common Stock.
Certain of the Company's loan agreements contain covenants which provide
for restrictions on the payment of dividends on Common Stock. See Notes to the
Consolidated Financial Statements for the fiscal quarter ended February 28,
1998.
19
<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
February 28, 1998 and as adjusted at such date to give effect to the sale of the
Convertible Subordinated Debentures and the receipt of the proceeds therefrom.
This table should be read in conjunction with the Consolidated Financial
Statements of the Company and Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FEBRUARY 28, 1998
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current portion of long-term debt......................... $ 13,430 $ 13,430
======== ==========
Long-term debt:
Revolving credit facility................................. $ 38,000 $ --
Other long-term debt...................................... 331,404 331,404
-------- ----------
Total long-term debt...................................... 369,404 331,404
Company-obligated mandatorily redeemable preferred
securities of subsidiaries holding solely company
subordinated notes........................................ 200,000
Stockholders' equity:
Common Stock, $1.00 par value per share; 40,000,000 shares
authorized; 25,067,226 shares issued(1)................ 25,067 25,067
Additional paid-in capital................................ 255,149 255,149
Treasury stock, 3,979,114 shares, at cost................. (87,272) (87,272)
Retained earnings......................................... 324,605 324,605
-------- ----------
Total stockholders' equity............................. 517,549 517,549
-------- ----------
Total capitalization................................... $886,953 $1,048,953
======== ==========
</TABLE>
- ---------------
(1) Excludes an aggregate of 1,923,187 shares of Common Stock issuable upon the
exercise of options outstanding under the Company's stock option plans as
of February 28, 1998 at a weighted average exercise price of $26.97 per
share, of which options to purchase 536,437 shares were exercisable at such
date. See Notes to annual Consolidated Financial Statements.
20
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of income data and the selected
consolidated balance sheet data as of May 31, 1993, 1994, 1995, 1996 and 1997
and for the fiscal years then ended have been derived from the Company's audited
consolidated financial statements and should be read in conjunction with those
statements, which are included in this Prospectus or incorporated herein by
reference. The selected consolidated statement of income data for the nine month
periods ended February 28, 1997 and 1998 and the consolidated balance sheet data
as of February 28, 1998 were derived from the unaudited consolidated financial
statements included herein. In the opinion of management, the unaudited
information includes all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations of the Company at the dates and for the periods presented.
Results for the nine month period ended February 28, 1998 are not necessarily
indicative of the results that may be expected for the full fiscal year. The
selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ENDED MAY 31, FEBRUARY 28,
---------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------------
(IN THOUSANDS EXCEPT DATA PER COMMON SHARE)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales...................... $614,292 $707,147 $830,526 $967,449 $973,824 $696,936 $ 861,168
Costs and expenses (income)
Cost of products sold........ 545,200 598,601 681,824 756,715 767,030 554,956 683,116
Selling, general and
administrative............. 43,116 47,341 58,275 68,852 76,535 56,006 67,798
Interest..................... 32,596 26,231 20,117 19,960 18,885 14,165 14,418
Other income................. (6,639) (8,614) (7,571) (13,119) (11,848) (7,169) (10,603)
-------- -------- -------- -------- -------- -------- ----------
614,273 663,559 752,645 832,408 850,602 617,958 754,729
-------- -------- -------- -------- -------- -------- ----------
Income before the following
items........................ 19 43,588 77,881 135,041 123,222 78,978 106,439
Income taxes................... (646) 15,556 25,700 47,256 41,189 26,767 35,252
-------- -------- -------- -------- -------- -------- ----------
665 28,032 52,181 87,785 82,033 52,211 71,187
Minority interest in
Chaparral(1)................. 393 (2,281) (4,164) (7,831) (6,559) (4,298) (4,400)
-------- -------- -------- -------- -------- -------- ----------
Net income..................... $ 1,058 $ 25,751 $ 48,017 $ 79,954 $ 75,474 $ 47,913 $ 66,787
======== ======== ======== ======== ======== ======== ==========
PER SHARE DATA:
Basic
Average common shares........ 22,076 22,473 24,567 22,203 21,751 22,012 21,066
Net income per common
share...................... $ 0.06 $ 1.15 $ 1.96 $ 3.61 $ 3.48 $ 2.18 $ 3.18
======== ======== ======== ======== ======== ======== ==========
Diluted
Average common shares........ 25,201 25,273 24,817 22,682 22,163 22,457 21,717
Net income per common
share...................... $ 0.05 $ 1.03 $ 1.94 $ 3.53 $ 3.42 $ 2.14 $ 3.08
======== ======== ======== ======== ======== ======== ==========
Cash dividends per common
share........................ $ 0.10 $ 0.10 $ 0.15 $ 0.20 $ 0.25 $ 0.18 $ 0.23
OTHER DATA:
EBITDA(2)...................... $ 82,414 $118,781 $147,340 $204,281 $196,016 $134,122 $ 165,858
Capital expenditures........... 17,212 23,305 48,751 79,300 85,188 65,262 344,335
Long-term debt to total
capitalization (at end of
period)...................... 48.6% 32.7% 35.1% 27.6% 28.0% 30.3% 41.6%
</TABLE>
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
---------------------------------------------------- ------------
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Net working capital............. $159,408 $161,383 $187,603 $219,345 $242,994 $ 221,532
Total assets.................... 757,300 749,120 753,055 801,063 847,923 1,117,368
Long-term debt.................. 267,243 171,263 185,274 160,209 176,056 369,404
Shareholders' equity............ 282,511 352,671 343,109 420,022 452,811 517,549
</TABLE>
- ---------------
(1) On December 31, 1997, TXI acquired the 15.7% in Chaparral previously held
by public shareholders.
(2) EBITDA is earnings before interest, income taxes, depreciation and
amortization. EBITDA should not be considered as an alternative to income
from operations or cash flow from operating activities (each determined in
accordance with generally accepted accounting principles).
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in connection with the Company's
audited and unaudited consolidated financial statements and notes thereto
included elsewhere in this Prospectus.
GENERAL
The Company is a leading supplier of construction materials through two
business segments: cement, aggregate and concrete products (the "CAC" segment);
and structural steel and specialty bar products (the "Steel" segment). Through
the CAC segment, the Company produces and sells cement, stone, sand and gravel,
expanded shale and clay aggregate and concrete products. Through its Steel
segment, the Company produces and sells structural steel, specialty bar
products, merchant bar-quality rounds, reinforcing bar and channels.
The Company owns long-term reserves of limestone, the primary raw material
for the production of cement. The primary raw material for the Company's Steel
operations is recycled steel obtained from crushed automobiles and other
sources. Both the CAC and Steel businesses require large amounts of capital
investment and energy.
Corporate resources include administration, financial, legal,
environmental, personnel and real estate activities which are not allocated to
operations and are excluded from operating profit.
A significant percentage of the Company's sales of both CAC and Steel
products is attributable to the level of construction activity, which is
affected by general economic conditions and seasonal weather conditions. The
Company's CAC operating profit is generally lower in the fiscal quarter ended
February 28 as compared to the other three fiscal quarters due to the impact of
winter weather conditions on construction activity. Steel results in the fiscal
quarter ended August 31 are affected by the Company's scheduled summer shut-down
to refurbish the production facilities.
22
<PAGE> 25
RESULTS OF OPERATIONS
The following table sets forth certain operating information about the
Company.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ENDED MAY 31, FEBRUARY 28,
-------------------------------- --------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C>
NET SALES
Cement................................................. $115,531 $137,773 $133,256 $ 95,636 $128,190
Ready-mix.............................................. 114,568 154,105 148,861 106,946 140,888
Stone, sand and gravel................................. 64,285 78,198 76,070 55,172 60,463
Other products......................................... 58,615 70,690 79,783 57,284 73,037
Interplant............................................. (54,284) (80,973) (80,822) (58,981) (70,354)
-------- -------- -------- -------- --------
Total CAC.............................................. 298,715 359,793 357,148 256,057 332,224
Structural mills....................................... 359,845 447,115 435,242 308,987 396,529
Bar mill............................................... 167,962 157,130 178,227 128,107 125,389
Other.................................................. 4,004 3,411 3,207 3,785 7,026
-------- -------- -------- -------- --------
Total Steel............................................ 531,811 607,656 616,676 440,879 528,944
-------- -------- -------- -------- --------
Total net sales........................................ 830,526 967,449 973,824 696,936 861,168
OPERATING COST
Operating cost -- CAC.................................. 229,708 269,665 274,100 199,821 257,330
Operating cost -- Steel................................ 488,183 531,880 545,189 392,756 469,431
-------- -------- -------- -------- --------
Total operating cost................................... 717,891 801,545 819,289 592,577 726,761
OPERATING PROFIT
Operating profit -- CAC................................ 69,007 90,128 83,048 56,246 74,894
Operating profit -- Steel.............................. 43,628 75,776 71,487 48,123 59,513
-------- -------- -------- -------- --------
Total operating profit................................. 112,635 165,904 154,535 104,369 134,407
CORPORATE RESOURCES
Selling, general and administrative.................... 15,502 17,168 19,270 13,885 17,683
Depreciation and amortization.......................... 786 823 838 606 684
Other income........................................... (1,651) (7,088) (7,680) (3,265) (4,817)
-------- -------- -------- -------- --------
14,637 10,903 12,428 11,226 13,550
Interest expense......................................... 20,117 19,960 18,885 14,165 14,418
-------- -------- -------- -------- --------
Income before income taxes & minority interest........... $ 77,881 $135,041 $123,222 $ 78,978 $106,439
======== ======== ======== ======== ========
OTHER DATA:
Depreciation and amortization -- CAC................... $ 14,669 $ 15,964 $ 19,918 $ 14,170 $ 18,974
Depreciation and amortization -- Steel................. 33,887 32,493 33,153 26,203 25,343
Capital expenditures -- CAC............................ 27,781 57,628 49,327 38,014 155,653
Capital expenditures -- Steel.......................... 16,234 20,630 33,776 25,590 187,001
Capital expenditures -- corporate resources............ 4,736 1,042 2,085 1,658 1,681
OPERATING DATA:
Units shipped
Cement (tons)........................................ 2,226 2,363 2,082 1,500 1,943
Ready-mix (cubic yards).............................. 2,415 3,088 2,813 2,024 2,617
Stone, sand and gravel (tons)........................ 12,375 15,706 15,501 11,110 12,438
Structural mills (tons).............................. 1,036 1,137 1,095 772 986
Bar mill (tons)...................................... 475 453 525 377 352
Weighted average sales price per unit
Cement (ton)......................................... $ 51.90 $ 58.30 $ 64.00 $ 63.76 $ 65.98
Ready-mix (cubic yards).............................. 47.44 49.90 52.92 52.84 53.84
Stone, sand and gravel (ton)......................... 5.19 4.98 4.91 4.97 4.86
Structural mills (ton)............................... 347.34 393.24 397.48 400.24 402.16
Bars mill (ton)...................................... 353.58 346.87 339.48 339.81 356.22
</TABLE>
NINE-MONTH PERIOD ENDED FEBRUARY 28, 1998 (THE "1998 PERIOD") COMPARED TO
NINE-MONTH PERIOD ENDED FEBRUARY 28, 1997 (THE "1997 PERIOD")
Net sales. Net sales were $861.2 million for the 1998 Period, an increase
of $164.2 million from the 1997 Period.
CAC sales. CAC sales were $332.2 million for the 1998 Period, an increase
of $76.2 million from the 1997 Period, of which $12.0 million was attributable
to Riverside, which was acquired on December 31, 1997. Higher cement sales
resulted from an increase of 19% in shipments from the Company's Texas
operations. The Company's entry into the California regional market through the
acquisition of Riverside contributed to an overall increase in total cement
shipments of 30%. Increased sales in ready-mix and stone, sand and gravel can be
attributed primarily to a return to more favorable weather conditions. Ready-mix
shipments increased 29% in the 1998 Period over the 1997 Period. Stone, sand and
gravel shipments increased by 12% during the
23
<PAGE> 26
1998 Period compared to the 1997 Period, while average prices for these products
decreased due to a change in the mix of products sold.
Steel sales. Steel sales were $528.9 million for the 1998 Period, an
increase of $88.1 million from the 1997 Period. Structural steel shipments
increased 28% in the 1998 Period, reflecting sustained demand for structural
products due to the strength in construction activity. Prices for bar mill
products increased 5% in the 1998 Period as a result of an improved product mix
and higher reinforcing bar and specialty bar product prices; these improvements
were somewhat offset by a 7% decrease in shipments.
Operating costs. Cost of products sold, including depreciation, depletion
and amortization, was $683.1 million for the 1998 Period, an increase of $128.2
million from the 1997 Period. CAC costs were $235.4 million, an increase of
$53.9 million compared to the 1997 Period, as a result of increased shipments
and higher maintenance costs at the Texas cement plants and the addition of the
higher operating costs of the Riverside plants. Steel costs were $447.7 million,
an increase of $74.2 million compared to the 1997 Period, resulting from
increased shipments and higher melt shop unit costs.
CAC selling, general and administrative expenses were $23.5 million in the
1998 Period, an increase of $3.6 million from the 1997 Period due primarily to
expanded operations and higher incentive compensation. Steel selling, general
and administration expenses were $25.9 million in the 1998 Period, an increase
of $4.3 million from the 1997 Period, due primarily to increased incentive
compensation.
Operating profit. Operating profit was $134.4 million in the 1998 Period,
an increase of $30.0 million from the 1997 Period. CAC profit was $74.9 million,
an increase of $18.6 million over the 1997 Period due to increased shipments.
Steel profit was $59.5 million, an increase of $11.4 million over the 1997
Period, due primarily to increased structural steel shipments and higher average
selling prices for specialty bar products.
Corporate resources. Selling, general and administrative expenses,
including depreciation and amortization, were $18.4 million for the 1998 Period,
an increase of $3.9 million from the 1997 Period due primarily to increased
incentive compensation expenses and general expenses not allocated to
operations. Other income of $4.8 million for the 1998 Period included $3.3
million from property sales generated by the Company's real estate operations,
an increase of $1.2 million from the 1997 Period property sales.
Interest expense. Interest expense was $14.4 million for the 1998 Period,
net of $2.1 million of capitalized interest.
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales. Net sales for fiscal 1997 were $973.8 million, an increase of
$6.4 million from fiscal 1996.
CAC sales. CAC sales were $357.1 million in fiscal 1997, a decrease of $2.6
million from fiscal 1996 due to lower shipments caused by unusually wet weather.
Average cement pricing increased by 10% in fiscal 1997 over fiscal 1996, while
shipments decreased by 12%. The decrease in ready-mix sales reflected price
increases of 6% in fiscal 1997, offset by a 9% decrease in shipments. The
increase in sales of other products reflected the Company's acquisition of
expanded shale and clay aggregate facilities in California in fiscal 1996.
Steel sales. Steel sales were $616.7 million for fiscal 1997, an increase
of $9.0 million from fiscal 1996, due to higher bar mill shipments which were
partially offset by a decline in structural steel shipments. Bar mill shipments
were 16% higher in fiscal 1997 than fiscal 1996. Specialty bar products
shipments increased 6% in fiscal 1997.
Operating costs. Cost of products sold, including depreciation, depletion
and amortization, was $767.0 million in fiscal 1997, a $10.3 million increase
from fiscal 1996. CAC costs were $249.6 million for fiscal 1997, an increase of
$2.9 million from fiscal 1996, due to higher unit costs for cement manufacturing
and ready-mix distribution, offset by the effect of lower cement shipments.
Steel costs were $517.4 million, an increase of $7.4 million from fiscal 1996
due primarily to increased shipments offset by slightly lower steel rolling
costs per ton.
24
<PAGE> 27
CAC selling, general and administrative expenses were $27.1 million for
fiscal 1997, an increase of $2.5 million from fiscal 1996. Steel selling,
general and administrative expenses were $29.3 million for fiscal 1997, an
increase of $3.1 million from fiscal 1996, primarily due to higher incentive
compensation.
Operating profit. Operating profit was $154.5 million in fiscal 1997, a
decrease of $11.4 million from fiscal 1996. CAC profit was $83.0 million for
fiscal 1997, a decrease of $7.1 million from fiscal 1996, primarily due to
reduced shipments caused by unusually wet weather. Steel profit was $71.5
million in fiscal 1997, a decrease of $4.3 million from fiscal 1996 as improved
margins from increased shipments were offset by higher selling, general and
administrative expenses.
Corporate resources. Selling, general and administrative expenses,
including depreciation and amortization, were $20.1 million for fiscal 1997, an
increase of $2.1 million from fiscal 1996 due to expanded operations, offset by
reduced incentive compensation at the corporate resources level. Other income of
$7.7 million included $6.3 million generated by the Company's real estate
operations during fiscal 1997.
Interest Expense. Interest expense was $18.9 million in fiscal 1997, a
decrease of $1.1 million from fiscal 1996, due to a reduction in the average
outstanding debt.
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales. Net sales for fiscal 1996 were $967.4 million, an increase of
$136.9 million from fiscal 1995.
CAC sales. CAC sales were $359.8 million in fiscal 1996, an increase of
$61.1 million from fiscal 1995 due to continued price improvements and increased
shipments. Average cement pricing increased by 12% in fiscal 1996 and cement
shipments increased by 6%. The increase in ready-mix sales in fiscal 1996
reflected a 28% increase in shipments due to expanded capacity and a 5% increase
in average prices. Stone, sand and gravel sales improved 22% in fiscal 1996,
with an increase in shipments of 27%, while overall average prices decreased 4%
due to a change in the mix of products sold.
Steel sales. Steel sales were $607.7 million in fiscal 1996, an increase of
$75.8 million from fiscal 1995, due to a 9% increase in average selling prices
and an increase in structural steel shipments. Prices for structural steel
products increased 13% in fiscal 1996 compared to fiscal 1995. Bar mill
shipments decreased by 5% in this period with somewhat lower average selling
prices.
Operating costs. Cost of products sold, including depreciation, depletion
and amortization, was $756.7 million in fiscal 1996, an increase of $74.9
million from fiscal 1995. CAC costs were $246.7 million for fiscal 1996, an
increase of $35.7 million from the prior year due to higher shipments. Steel
costs were $510.0 million in fiscal 1996, an increase of $40.6 million over
fiscal 1995, due to higher shipments. Higher scrap, melt shop and steel rolling
costs resulted in a 4% increase in average cost per ton.
CAC selling, general and administrative expenses were $24.7 million for
fiscal 1996, an increase of $3.1 million from fiscal 1995, due to higher
incentive compensation. Steel selling, general and administrative expenses were
$26.2 million for fiscal 1996, an increase of $5.8 million from fiscal 1995,
primarily due to higher incentive compensation.
Operating profit. Operating profit was $165.9 million in fiscal 1996, an
increase of $53.3 million from fiscal 1995. CAC profit was $90.1 million, an
increase of $21.1 million from fiscal 1995 due to increased shipments and higher
prices. Steel profit was $75.8 million in fiscal 1996, an increase of $32.1
million from fiscal 1995, due to increased prices outpacing increased costs.
Corporate resources. Selling, general and administrative expenses were
$18.0 million for fiscal 1996, an increase of $1.7 million from fiscal 1995.
Interest expense. Interest expense was $20.1 million in fiscal 1996, a
decrease of $100,000 from fiscal 1995.
25
<PAGE> 28
LIQUIDITY AND CAPITAL RESOURCES
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 sale of the Convertible Subordinated Debentures 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.
Net cash provided by operating activities for the 1998 Period was $144.4
million, an increase of $75.9 million over the 1997 Period due to higher net
income, increased depreciation, depletion and amortization expense and changes
in working capital items. During fiscal years 1997, 1996 and 1995, net cash
provided by operating activities was $109.9 million, $127.5 million and $115.9
million, respectively.
Net cash used by investing activities for the 1998 Period was $346.4
million compared to $83.6 million in fiscal 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 1998 capital expenditure
budget for these activities is estimated to reach $160 million, of which $113.6
million has been incurred during the 1998 Period. Expenditures 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 for the construction of the Company's
Virginia steel facility were $47.9 million for the 1998 Period. 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, although
there can be no assurance that the facility will commence production on schedule
or that the total cost will not increase. Effective December 31, 1997, the
Company purchased Riverside for $115.4 million, of which $110.9 million had been
paid through February 28, 1998. On December 31, 1997, the Company acquired the
minority interest in Chaparral for an estimated $77.1 million, including
transaction expenses, of which $72.0 million had been paid through February 28,
1998.
Net cash provided by financing activities for the 1998 Period was $186.6
million compared to $34.5 million used in fiscal 1997. Borrowings, net of debt
retirements, increased $193.3 million in the 1998 Period. On December 18, 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%.
This financing and cash provided by operations funded the Company's increased
capital expenditures for the 1998 Period. In December 1997, 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. At February
28, 1998, $302.6 million was available for future borrowings thereunder. 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.
YEAR 2000 COMPLIANCE
The Company is aware of the 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.
INFLATION
Management believes that inflation has not had a material effect on the
Company's operations.
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RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." This statement establishes new standards for computing and presenting
earnings per share and became effective for financial statements issued for
periods ending after December 15, 1997, including interim periods, and requires
that all prior period earnings per share data be restated. The Company adopted
SFAS No. 128 for its fiscal quarter ended February 28, 1998.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information." 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.
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BUSINESS
GENERAL
TXI is a leading supplier of construction materials through two business
segments: cement, aggregate and concrete products; and structural steel and
specialty bar products. The Company is the largest producer of cement in Texas
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 manufacturer ("OEM"), tool and oil country goods markets.
From fiscal 1994 to fiscal 1997, TXI's net sales and net income have grown at a
compound annual rate of 11% and 43%, respectively. For the 12 months ended
February 28, 1998, the Company generated $1.1 billion in net sales and $94.3
million in net income.
The Company is the only major North American producer of both cement and
steel. TXI has derived significant benefits therefrom, primarily in lowering
production costs and enhancing productivity through the innovative recycling of
by-products of manufacturing. The Company has extensive operating experience in
both of its business segments. Founded in 1951, the Company 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.
On December 31, 1997, the Company acquired Riverside, 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 60%. 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. The Company is in the
planning stages of modernizing and upgrading its portland cement plant in
California.
BUSINESS STRATEGY
The Company's business strategy is to grow profitably in both of its
business segments by achieving and maintaining market leadership positions in
desirable markets, capitalizing on innovation in manufacturing processes and
products, being the low cost supplier, pursuing strategic growth opportunities
and preserving financial strength and flexibility in order to capitalize on
these opportunities when they arise.
The key elements of the Company's strategy are:
Achieve and Maintain Market Leadership. The Company strives to be the
number one or two supplier in desirable markets. The Company is:
- The largest producer of cement in Texas and a major cement producer in
California, the two largest cement markets in the U.S.
- The second largest supplier of structural steel products in North
America.
- The largest supplier of light weight steel beams used in manufactured
housing in North America.
- The largest supplier of expanded shale and clay aggregate products west
of the Mississippi River.
- The largest supplier of stone, sand and gravel aggregate products and the
second largest supplier of ready-mix concrete in North Texas.
- The largest supplier of sand and gravel aggregate products and ready-mix
concrete in Louisiana.
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Capitalize on Innovation in Manufacturing Processes and Products. The
Company emphasizes the development and improvement of manufacturing process
technologies and the design and marketing of new products. Research and
development of manufacturing processes and products is considered to be every
employee's responsibility at TXI. All employees are empowered to seek and
implement creative ideas to improve operations and results.
- TXI pioneered and is a leader in the manufacture of wide flange beams and
other structural steel products using recycled steel.
- TXI developed and patented near net shape casting, a process which
provides energy and capital cost savings in the making of wide flange
beams and other structural steel products.
- TXI developed and patented the CemStar process, which uses a co-product
from steel-making to increase cement production with little additional
cost. TXI continues to research and refine processes for the recovery and
recycling of waste and the by-products generated by manufacturing
processes.
- TXI continues to develop new, higher-margin products, such as Bantam
Beams and Diamond Pro professional groundskeeping products.
Be the Low Cost Supplier. The Company's focus on market leadership is
accompanied by its determination to drive down production and distribution costs
in order to be the low cost supplier to its customers.
- TXI operates the largest steel shredder in the world, currently supplying
42% of its total steel raw material needs. The shredder enables the
Company to access a continuous source of low cost, unprocessed scrap
steel in order to reduce costs and exposure to increasing prices for
higher grade recycled steel.
- TXI is a leader in substituting alternative fuels for the nonrenewable
fuels typically used in the energy intensive cement manufacturing
process. The Company lowers cement manufacturing costs both by reducing
expenditures for the nonrenewable fuels and by receiving income for the
management of alternative fuels received from third party generators of
such fuels.
Pursue Strategic Growth Opportunities. The Company pursues profitable
growth by building on its business and operational expertise in order to enter
new markets and introduce new products.
- A structural steel facility being constructed in Virginia will combine a
steel shredder, near net shape casting, state-of-the-art steel melting
technology and a proprietary rolling mill design to achieve low
production costs and the widest structural steel product range available
from a single facility.
- The acquisition of Riverside provides TXI access to California, the
largest cement market in the U.S. The Company intends to implement its
CemStar process at Riverside in the near term to enhance productivity and
increase capacity. The Company also intends to upgrade and modernize
Riverside's existing portland cement plant with higher capacity and more
cost efficient equipment in order to move into a position of leadership
in the California regional market.
- TXI intends to increase its Midlothian cement capacity from 1.3 million
to 2.8 million tons per year in order to maintain and enhance its
position as the largest producer of cement in Texas.
- TXI is upgrading its specialty bar products capability to further improve
product mix and increase the breadth of markets addressed.
- TXI has embarked on a program to license its CemStar process to cement
producers throughout the world.
- TXI continues to pursue investments for internal growth and opportunistic
acquisitions in order to build on leadership positions in its stone, sand
and gravel, expanded shale and clay and concrete operations.
Preserve Financial Strength and Flexibility. The Company strives to be
financially positioned to pursue profitable growth opportunities as they arise.
TXI expects that the proceeds from the sale of the Convertible Subordinated
Debentures will enable the Company to maintain its commitment to a strong
financial position and pursue its business strategy on a sound financial basis.
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CEMENT
Industry Overview. Cement is the essential binding material used in making
concrete, which is widely used in residential, non-residential and public works
construction activity. Given the high transportation costs of cement relative to
its value, it is typically sold within a 200 mile radius from the producing
plant, with those producers on or near waterways able to transport their product
over substantially greater distances on a cost effective basis. Consequently,
even cement producers with global operations compete on a regional basis in each
market in which that company manufactures and distributes product. No single
cement company in the U.S. has a production and distribution system extensive
enough to serve all U.S. markets. The ability of a company to compete in a given
market depends largely on the location and operating costs of its plants and
associated distribution terminals, price and service in that market.
Demand for cement is dependent on levels of construction activity specific
to a region or market. Current demand for cement in the Texas and California
regions, as in the rest of the country as a whole, is in excess of current
domestic cement capacity. The Company believes that a continuation of the
current low interest rate environment and increased government spending on
infrastructure improvement, including the enactment of the Intermodal Surface
Transportation Efficiency Act of 1998 ("ISTEA II"), could have a favorable
impact on future demand in its markets. In Texas and California alone, ISTEA II
authorizes the appropriation of approximately 40% greater federal funding over
the next six years for the construction and improvement of highways, bridges and
mass transit systems over the Intermodal Surface Transportation Efficiency Act
of 1992.
TXI's Products. TXI's principal product is portland cement. The Company
also produces specialty cements such as white, masonry, adobe and oil well.
Manufacturing. TXI's 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. The limestone reserves used as
the primary raw material are owned by the Company, except for the Crestmore
facility. 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 ESTIMATED
CAPACITY -- MANUFACTURING MINIMUM
PLANT (TONS OF CLINKER) PROCESS SERVICE 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>
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.
Raw Materials. The principal raw material used in the production of
portland cement is calcium carbonate in the form of limestone. Limestone is
obtained principally by mining and extracting from the Company's quarries
located in close proximity to its plants.
Marketing and Distribution. The Company markets its products throughout the
southwestern U.S. 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
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customers in the construction industry, none of which accounted for more than
10% of the Company's sales during fiscal 1997.
The Company distributes cement from its plants by rail or truck to eight
distribution terminals located throughout its marketing area.
Competition. The cement industry is highly competitive with suppliers
differentiating themselves based on price, service and quality.
AGGREGATE, CONCRETE AND OTHER PRODUCTS
Industry Overview. The construction aggregates business consists of the
mining, extraction, production and sale of stone, sand, gravel and lightweight
aggregates such as expanded shale and clay. Construction aggregates are employed
in virtually all types of construction, including highway construction and
maintenance. The concrete business involves the mixing of cement, sand, gravel,
crushed stone and water to form concrete which is subsequently marketed and
distributed to numerous construction contractors.
Demand for aggregate and concrete products largely depends on regional
levels of construction activity, and therefore tends to follow cycles similar to
those of cement. Both the aggregates and concrete industries are highly
fragmented, with numerous participants operating in localized markets. The cost
of transportation of both aggregate and concrete products is high relative to
their value, and consequently, producers are typically limited to a market area
within 100 miles of their production facilities. Similar to the market for
cement, the Company believes that the current favorable conditions, including
low interest rates, strong regional economies in Texas and California, as well
as the impact of ISTEA II, could lead to increased residential, non-residential
and public works construction activity, fueling the demand for aggregates and
concrete.
TXI's Products. TXI's principal products supplied by these businesses
include stone, sand and gravel, expanded shale and clay, ready-mix concrete,
concrete block and pipe and clay brick.
Manufacturing
Aggregates and Expanded Shale and Clay. The Company's aggregate business,
which includes stone, sand and gravel, 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, the Oakland/San Francisco and Los Angeles areas in California and the
Denver area in Colorado.
Ready-Mix Concrete and Concrete Products. The Company currently operates
46 ready-mix concrete plants and 447 ready-mix trucks in three areas in Texas
(Dallas/Fort Worth/Denton, East Texas and Houston), in northwest, northeast and
central Louisiana and at one location in southern Arkansas.
Raw Materials. Aggregates and expanded shale and clay reserves are either
owned or leased by the Company. The Company 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.
Marketing and Distribution. Sales of these various products are generally
related to the level of construction activity within close proximity of the
plant location. The cost of transportation limits the marketing of these
products 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, none of
which would be considered significant to the Company's business. In aggregates
and expanded shale and clay products, the distribution of these products is
provided principally by contract or customer-owned haulers, and a limited amount
of these products is distributed by rail.
Competition. The Company competes with numerous suppliers of aggregate and
concrete products. In most of the Company's markets for these products, the
Company competes with a number of vertically integrated companies. The Company
believes that it is a significant competitor in each of the Texas and Louisiana
aggregate and concrete products markets.
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STEEL
Industry Overview
Production. There are currently two manufacturing processes utilized in the
production of steel. One process uses recycled steel as its principal raw
material. Companies with this process are generally referred to as recycled
steel-based producers and the steel plants are sometimes referred to as
"mini-mills." The other manufacturing process utilizes the traditional basic
oxygen furnace to make steel from iron ore, and companies with this process are
generally referred to as integrated producers. Recycled steel-based producers
employ electric-arc furnaces to melt recycled steel and typically experience
lower costs of production and higher productivity than integrated producers. As
a result, recycled steel producers have been able to capture large segments of
the steel market from integrated producers.
Structural Products. Structural products include wide flange beams,
standard beams, channels and other shapes that are primarily used in commercial,
retail, industrial, institutional and warehouse construction. Additional markets
include manufactured housing and public works construction. Annual consumption
of structural products in North America is approximately 8.0 million tons. Wide
flange beams, TXI's primary steel product, account for approximately 4.8 million
tons of the total structural products market. Wide flange beam capacity in North
America is currently 3.3 million tons, leaving a capacity shortfall of
approximately 1.5 million tons currently filled by imports.
Bar Products. Bar products consist of reinforcing bar, a commodity product,
and specialty bar products. Specialty bar products serve many applications
including OEM applications, tools and oil country goods. When combined,
specialty bar products currently account for approximately 8.0 million tons of
shipments in the U.S. Tight quality control, particularly when using recycled
steel as a raw material, is required to make these products. As a result,
relatively few recycled steel-based producers specialize in these products and
integrated producers still have a considerable market share.
Reinforcing bar goes into any type of construction that uses concrete. It
is the commodity product of the steel industry and many recycled steel-based
producers make the product. As a result, the market for reinforcing bar is very
regional.
TXI's Products. The Company's structural and bar products include beams
ranging from 4 to 24 inches in width, specialty bar products, reinforcing bar,
channels and merchant bar-quality rounds. The Company's Bantam Beams supply the
manufactured housing industry. On completion of its Virginia steel facility, the
Company's range of beams will increase to 36 inches in width. In addition, North
American and European sheet pile sections, products which are used in
excavation, waterway construction and foundation applications, will be made at
the Virginia facility.
Manufacturing. The Company operates a steel facility at Midlothian, Texas.
The Texas facility has two electric-arc furnaces with continuous casters which
feed two structural rolling mills and one bar rolling mill. The rated annual
capacity of the Texas steel facility is 1.8 million tons of melting and 1.9
million tons of rolling.
The Company has begun construction of a steel manufacturing facility near
Richmond, Virginia with a rated capacity of 1.2 million tons per year. The new
facility will be the first to combine near net shape casting technology with
state-of-the-art melting and rolling technology, providing the widest range of
structural steel products at the lowest cost.
Raw Materials. TXI's primary raw material is recycled steel, with steel
shredded by the Company's shredder currently representing 42% of the raw
material mix. The shredded material is primarily composed of crushed automobile
bodies purchased in the open market. Recycled steel that is not shredded by TXI
is purchased from numerous outside suppliers.
The Company's steel facility 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 based on the
timing of electricity consumption. 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.
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Marketing and Distribution. The Company's products are marketed throughout
the United States and to a limited extent in Canada and Mexico. Sales are
primarily to steel service centers and steel fabricators for use in the
construction industry, as well as to cold finishers, forgers and OEMs for use in
the railroad, defense, automotive, mobile home and energy industries. Finished
products are delivered by Company-owned trucks, common carriers, customer-owned
trucks, rail and barge.
Competition. The Company competes with steel producers, including foreign
producers, on the basis of price, quality and service. Certain of the Company's
foreign and domestic competitors, including both large integrated steel
producers and other recycled steel-based producers, have substantially greater
assets and larger sales organizations.
DESCRIPTION OF THE PREFERRED SECURITIES
GENERAL
The Preferred Securities will be issued pursuant to the terms of the Trust
Agreement. The Trust Agreement will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee will act as the Indenture Trustee for
purposes of compliance with the provisions of the Trust Indenture Act. The terms
of the Preferred Securities will include those stated in the Trust Agreement and
those made part of the Trust Agreement by the Trust Indenture Act. The following
summary of the principal terms and provisions of the Preferred Securities does
not purport to be complete and is subject in all respects to, and qualified in
its entirety by reference to, the Trust Agreement, a copy of which is filed as
an exhibit to the Registration Statement of which this Prospectus forms a part,
the Trust Act and the Trust Indenture Act.
The Trust Agreement authorizes the Administrative Trustees, on behalf of
the Trust, to issue the Preferred Securities, which represent preferred
undivided beneficial interests in the assets of the Trust, and the Common
Securities, which represent common undivided beneficial interests in the assets
of the Trust. All of the Common Securities will be owned by TXI. The Common
Securities rank pari passu, and payments will be made thereon on a pro rata
basis with, the Preferred Securities except that, upon the occurrence of a Trust
Agreement Event of Default, the rights of the holders of the Common Securities
to receive payment of periodic Distributions and payments upon liquidation,
redemption and otherwise will be subordinated to the rights of the holders of
the Preferred Securities. The Trust Agreement does not permit the Trust to issue
any securities other than the Trust Securities or to incur any indebtedness.
Pursuant to the Trust Agreement, the Property Trustee will own and hold the
Convertible Subordinated Debentures for the benefit of the holders of the Trust
Securities. The payment of Distributions out of funds held by the Trust, and
payments upon redemption of the Preferred Securities or liquidation of the
Trust, are guaranteed by TXI on a subordinated basis as and to the extent
described under "Description of the Preferred Securities Guarantee." The
Preferred Guarantee Trustee will hold the Preferred Securities Guarantee for the
benefit of the holders of the Preferred Securities. The Preferred Securities
Guarantee does not cover payment of Distributions on the Preferred Securities
when the Trust does not have sufficient available funds in the Property Account
to make such Distributions. In such event, the remedy of a holder of Preferred
Securities is to (i) vote to appoint a Special Administrative Trustee, (ii)
direct the Property Trustee to enforce its rights under the Convertible
Subordinated Debentures or (iii) if the failure of the Trust to pay
Distributions is attributable to the failure of TXI to pay interest or principal
on the Convertible Subordinated Debentures, institute a proceeding directly
against TXI for enforcement of payment to such holder of the principal or
interest on the Convertible Subordinated Debentures having a principal amount
equal to the aggregate liquidation amount of the Preferred Securities of such
holder on or after the respective due date specified in the Convertible
Subordinated Debentures. See "Description of the Preferred Securities -- Voting
Rights."
DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed at an annual rate
of 5.5% of the stated liquidation amount of $50 per Preferred Security.
Distributions in arrears for more than one quarter will bear interest thereon at
the annual rate of 5.5% thereof. The term "Distributions" as used herein
includes any such interest
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<PAGE> 36
payable unless otherwise stated. The amount of Distributions payable for any
period will be computed on the basis of a 360-day year of twelve 30-day months.
Distributions on the Preferred Securities will be cumulative, will accrue
from June 5, 1998 and will be payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year to the holders of record on the
applicable record date, commencing September 30, 1998 when, as and if available
for payment by the Property Trustee, except as otherwise described below. The
Distribution on September 30, 1998 will include the period from June 5, 1998 to
September 30, 1998.
TXI has the right at any time, so long as no Indenture Event of Default has
occurred and is continuing, under the Indenture to defer payments of interest on
the Convertible Subordinated Debentures by extending the interest payment period
from time to time on the Convertible Subordinated Debentures (each, an
"Extension Period") which, if exercised, would defer quarterly Distributions on
the Preferred Securities (though such Distributions would continue to accrue
interest since interest would continue to accrue on the Convertible Subordinated
Debentures) during any such extended interest payment period. In the event that
TXI exercises this right, then TXI will not and shall not permit any subsidiary
to, (i) declare or pay any dividends or distributions on or redeem, purchase,
acquire or make a liquidation payment with respect to, any of TXI's capital
stock, (ii) make any payment of principal of, premium, if any, or interest on or
repay, repurchase or redeem any debt security of TXI that ranks pari passu with
or junior in interest to the Convertible Subordinated Debentures or (iii) make
any guarantee payments with respect to any guarantee by TXI of the debt
securities of any subsidiary if such guarantee ranks pari passu with or junior
in interest to the Convertible Subordinated Debentures (other than (a) dividends
or distributions in TXI's capital stock, (b) any declaration of a dividend in
connection with the implementation of a Rights Plan or the redemption or
repurchase of any rights distributed pursuant to a Rights Plan, (c) payments
under the Preferred Securities Guarantee and (d) purchases of TXI Common Stock
related to the issuance of TXI Common Stock or rights under any of TXI's benefit
plans for its directors, officers or employees, related to the issuance of TXI
Common Stock or rights under a dividend reinvestment and stock purchase plan or
related to the issuance of TXI Common Stock (or securities convertible or
exchangeable for TXI Common Stock) as consideration in an acquisition
transaction that was entered into prior to the commencement of such Extension
Period). Prior to the termination of any such Extension Period, TXI may further
extend the interest payment period, provided that (1) such Extension Period
together with all such previous and further extensions thereof may not exceed 20
consecutive quarters and (2) no Extension Period may extend beyond the maturity
of the Convertible Subordinated Debentures. Upon the termination of any
Extension Period and the payment of all amounts then due, TXI may elect a new
Extension Period as if no Extension Period had previously been declared, subject
to the above requirements. See "Description of the Convertible Subordinated
Debentures -- Interest" and "Description of the Convertible Subordinated
Debentures -- Option to Extend Interest Payment Period." If Distributions are
deferred, the deferred Distributions and accrued interest thereon will be paid
to holders of record of the Preferred Securities, if funds are available
therefor, as they appear on the books and records of the Trust on the record
date next following the termination of such Extension Period.
Distributions on the Preferred Securities will be paid on the dates payable
to the extent that the Trust has funds available for the payment of such
Distributions in the Property Account. The Trust's funds available for
distribution to the holders of the Preferred Securities will be limited to
payments received under the Convertible Subordinated Debentures. See
"Description of the Convertible Subordinated Debentures." The payment of
distributions out of funds held by the Trust is guaranteed by TXI to the extent
set forth under "Description of the Preferred Securities Guarantee."
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which, as long as the Preferred Securities remain in book-entry
only form, will be one Business Day (as defined herein) prior to the relevant
payment dates. Such Distributions will be paid through the Property Trustee, who
will hold amounts received in respect of the Convertible Subordinated Debentures
in the Property Account for the benefit of the holders of the Trust Securities.
Subject to any applicable laws and regulations and the provisions of the Trust
Agreement, each such payment will be made as described under "Book-Entry Only
Issuance -- The Depository Trust Company." In the event the Preferred Securities
do not continue to remain in book-entry only form, the
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record date will be the 15th day of the month in which the relevant payment date
occurs. In the event that any date on which Distributions are to be made on the
Preferred Securities is not a Business Day, payment of the Distributions payable
on such date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay) except that,
if such Business Day is in the next succeeding calendar year, such payment will
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such date. A "Business Day" is any day other than
Saturday, Sunday or day on which banking institutions in The City of New York or
the State of Delaware are authorized or required by law to close.
CONVERSION RIGHTS
Each Preferred Security is convertible, at the option of the holder, at any
time, into shares of TXI Common Stock. A holder of Preferred Securities wishing
to exercise conversion rights shall deliver any or all of its Preferred
Securities to the Conversion Agent, which shall exchange such Preferred
Securities for a portion (equal to the aggregate liquidation preference of the
Preferred Securities being converted) of the Convertible Subordinated Debentures
held by the Trust and immediately convert such Convertible Subordinated
Debentures into TXI Common Stock. See "Description of Convertible Subordinated
Debentures -- Conversion Rights."
Accrued Distributions will not be paid on Preferred Securities that are
converted, nor will any payment, allowance or adjustment be made for accumulated
and unpaid Distributions, whether or not in arrears, on converted Preferred
Securities, except that if any Preferred Security is converted (i) on or after a
record date for payment of Distributions thereon, the amount of the
Distributions payable on the related payment date with respect to such Preferred
Security will be paid by the converting holder to the Trust and the
Distributions payable on the related payment date with respect to such Preferred
Security will be distributed to the holder on such payment date, despite such
conversion, and (ii) during an Extension Period and after the Property Trustee
mails a notice of redemption with respect to the Preferred Securities that are
converted, accrued and unpaid Distributions through the date of conversion on
such Preferred Securities called for redemption will be distributed to the
holder who converts such Preferred Securities, which Distribution shall be made
on the redemption date fixed for redemption. Except as provided above, neither
the Trust nor TXI will be required to make any payment, allowance or adjustment
upon any conversion on account of any accumulated and unpaid Distribution
accrued on the Preferred Securities surrendered for conversion, or on account of
any accumulated and unpaid dividends, if any, on the shares of TXI Common Stock
issued upon such conversion. Trust Securities will be deemed to have been
converted immediately prior to 5:00 p.m. (New York City time) on the day on
which a conversion request relating to such Trust Securities is received by the
Trust (the "Conversion Date").
MANDATORY REDEMPTION
The Convertible Subordinated Debentures will mature on June 30, 2028, and
may be redeemed, in whole or in part, at any time on or after June 30, 2001, or
at any time, in whole or in part, in certain circumstances upon the occurrence
of a Tax Event. Upon the repayment of the Convertible Subordinated Debentures,
whether at maturity or upon redemption, the proceeds from such repayment or
payment simultaneously will be applied to redeem Trust Securities having an
aggregate liquidation amount equal to the aggregate principal amount of the
Convertible Subordinated Debentures so repaid or redeemed at the Redemption
Price; provided that holders of Preferred Securities will be given not less than
30 nor more than 60 days notice of such redemption. See "Description of the
Convertible Subordinated Debentures." In the event that fewer than all of the
outstanding Preferred Securities are to be redeemed, the Preferred Securities
will be redeemed as described under "Book-Entry Only Issuance -- The Depository
Trust Company."
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
"Tax Event" means that the Administrative Trustees shall have received an
opinion from independent tax counsel experienced in such matters to the effect
that, as a result of (a) any amendment to, or change (including any announced
prospective change) in, the laws (or any regulations thereunder) of the United
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States or any political subdivision or taxing authority thereof or therein or
(b) any amendment to, or change in, an interpretation or application of such
laws or regulations, there is more than an insubstantial risk that (i) the Trust
would be subject to United States federal income tax with respect to income
accrued or received on the Convertible Subordinated Debentures, (ii) interest
payable to the Trust on the Convertible Subordinated Debentures would not be
deductible, in whole or in part, by TXI for United States federal income tax
purposes or (iii) the Trust would be subject to more than a de minimis amount of
other taxes, duties or other governmental charges, which change or amendment
becomes effective on or after the date of this Prospectus.
"Investment Company Event" means that the Administrative Trustees shall
have received an opinion from independent counsel to the effect that, as a
result of the occurrence of a change in law or regulation or a written change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
there is more than an insubstantial risk that the Trust is or will be considered
an "investment company" which is required to be registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), which Change in 1940 Act Law
becomes effective on or after the date of this Prospectus.
If, at any time, a Tax Event or an Investment Company Event (each, as
defined above, a "Special Event") shall occur and be continuing, the Trust,
except in the circumstances described below, will be dissolved with the result
that, after satisfaction of the liabilities of the Trust to creditors,
Convertible Subordinated Debentures with an aggregate principal amount equal to
the aggregate stated liquidation amount of, with an interest rate identical to
the distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid Distributions on, the Preferred Securities would be distributed to the
holders of the Preferred Securities, in liquidation of such holders' interests
in the Trust on a pro rata basis, within 90 days following the occurrence of
such Special Event; provided, however, that in the case of the occurrence of a
Tax Event, as a condition of such dissolution and distribution, the
Administrative Trustees shall have received an opinion from independent tax
counsel experienced in such matters (a "No Recognition Opinion"), which opinion
may rely on published revenue rulings of the Internal Revenue Service, to the
effect that the holders of the Preferred Securities will not recognize any gain
or loss for United States federal income tax purposes as a result of such
dissolution and distribution of Convertible Subordinated Debentures; and,
provided, further, that, if at the time there is available to the Trust the
opportunity to eliminate, within such 90 day period, the Tax Event by taking
some ministerial action, such as filing a form or making an election, or
pursuing some other similar reasonable measure which has no adverse effect on
the Trust, TXI or the holders of the Preferred Securities, the Trust will pursue
such measure in lieu of dissolution. Furthermore, if in the case of the
occurrence of a Tax Event, (i) TXI has received an opinion from independent tax
counsel experienced in such matters that, as a result of a Tax Event, there is
more than an insubstantial risk that TXI would be precluded from deducting the
interest on the Convertible Subordinated Debentures for United States federal
income tax purposes even after the Convertible Subordinated Debentures were
distributed to the holders of Preferred Securities in liquidation of such
holders' interests in the Trust as described above or (ii) the Administrative
Trustees shall have been informed by such tax counsel that a No Recognition
Opinion cannot be delivered, TXI shall have the right, upon not less than 30 nor
more than 60 days notice, to redeem the Convertible Subordinated Debentures in
whole or in part for cash within 90 days following the occurrence of such Tax
Event, and, following such redemption, Preferred Securities with an aggregate
liquidation amount equal to the aggregate principal amount of the Convertible
Subordinated Debentures so redeemed shall be redeemed by the Trust at the
Redemption Price on a pro rata basis; provided, however, that, if at the time
there is available to TXI or the Trust the opportunity to eliminate, within such
90 day period, the Tax Event by taking some ministerial action, such as filing a
form or making an election, or pursuing some other similar reasonable measure
which has no adverse effect on the Trust, the holders of the Preferred
Securities or TXI, the Trust will pursue such measure in lieu of redemption.
If Convertible Subordinated Debentures are distributed to the holders of
the Preferred Securities, TXI will use its best efforts to have the Convertible
Subordinated Debentures listed on the NYSE or on such other exchange as the
Preferred Securities are then listed.
After the date for any distribution of Convertible Subordinated Debentures
upon dissolution of the Trust, (i) the Preferred Securities and Preferred
Securities Guarantee will no longer be deemed to be outstanding,
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(ii) the depositary or its nominee, as the record holder of the Preferred
Securities, will receive a registered global certificate or certificates
representing the Convertible Subordinated Debentures to be delivered upon such
distribution and (iii) any certificates representing Preferred Securities and
the Preferred Securities Guarantee not held by the depositary or its nominee
will be deemed to represent Convertible Subordinated Debentures having an
aggregate principal amount equal to the aggregate stated liquidation amount of,
with an interest rate identical to the distribution rate of, and accrued and
unpaid interest equal to accrued and unpaid Distributions on, such Preferred
Securities, until such certificates are presented to TXI or its agent for
transfer or reissuance.
There can be no assurance as to the market prices for the Preferred
Securities or the Convertible Subordinated Debentures that may be distributed in
exchange for the Preferred Securities if a dissolution and liquidation of the
Trust were to occur. Accordingly, the Preferred Securities that an investor may
purchase, or the Convertible Subordinated Debentures that the investor may
receive on dissolution and liquidation of the Trust, may trade at a discount to
the price that the investor paid to purchase the Preferred Securities offered
hereby.
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Preferred
Securities unless all accrued and unpaid Distributions have been paid on all
Preferred Securities for all quarterly distribution periods terminating on or
prior to the date of redemption.
If the Trust gives a notice of redemption in respect of Preferred
Securities, then, by 12:00 noon, New York City time, on the redemption date,
provided that TXI has paid to the Property Trustee a sufficient amount of cash
in connection with the related redemption or maturity of the Convertible
Subordinated Debentures, the Property Trustee will irrevocably deposit with the
depositary funds sufficient to pay the applicable Redemption Price and will give
the depositary irrevocable instructions and authority to pay the Redemption
Price to the holders of the Preferred Securities. See "Book-Entry Only
Issuance -- The Depository Trust Company." If notice of redemption shall have
been given and funds deposited as required, then immediately prior to the close
of business on the date of such deposit, Distributions will cease to accrue and
all rights of holders of such Preferred Securities so called for redemption will
cease, except the right of the holders of such Preferred Securities to receive
the Redemption Price, but without interest on such Redemption Price. In the
event that any date fixed for redemption of Preferred Securities is not a
Business Day, then payment of the Redemption Price payable on such date will be
made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day. In the event that payment of the Redemption
Price in respect of Preferred Securities is improperly withheld or refused and
not paid either by the Trust or by TXI pursuant to the Preferred Securities
Guarantee, Distributions on such Preferred Securities will continue to accrue
from the original redemption date to the actual date of payment, in which case
the actual payment date will be considered the date fixed for redemption for
purposes of calculating the Redemption Price.
In the event that fewer than all of the outstanding Preferred Securities
are to be redeemed, the Preferred Securities will be redeemed as described under
"Book-Entry Only Issuance -- The Depository Trust Company."
Subject to the foregoing and to applicable law, TXI or its affiliates, at
any time and from time to time, may purchase outstanding Preferred Securities by
tender, in the open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust, the holders of the Preferred Securities
at that time will be entitled to receive out of the assets of the Trust, after
satisfaction of liabilities to creditors, distributions in an amount equal to
the aggregate of the stated liquidation amount of $50 per Preferred Security
plus accrued and unpaid Distributions thereon to the date of payment (the
"Liquidation Distribution"), unless, in connection with such liquidation,
dissolution, winding-up
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or termination, Convertible Subordinated Debentures in an aggregate principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate identical to the distribution rate of, and accrued and unpaid interest
equal to accrued and unpaid Distributions on, the Preferred Securities have been
distributed on a pro rata basis to the holders of Preferred Securities.
If, upon any such dissolution, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Preferred Securities shall be paid on a pro rata basis. The holders
of the Common Securities will be entitled to receive distributions upon any such
dissolution pro rata with the holders of the Preferred Securities, except that
if an Indenture Event of Default has occurred and is continuing, the Preferred
Securities shall have a preference over the Common Securities with respect to
such distributions.
Pursuant to the Trust Agreement, the Trust shall dissolve (i) on June 30,
2028, the expiration of the term of the Trust, (ii) upon the bankruptcy of TXI,
(iii) upon the filing of a certificate of dissolution or its equivalent with
respect to TXI (except for permitted mergers, consolidations or reorganizations
of TXI) or the revocation of the charter of TXI and the expiration of 90 days
after the date of revocation without a reinstatement thereof, (iv) the
occurrence of a Special Event, (v) upon the redemption of all of the Trust
Securities in connection with the redemption of all of the Convertible
Subordinated Debentures, (vi) upon the written direction to the Property Trustee
from TXI at any time to terminate the Trust and, after satisfaction of
liabilities to creditors of the Trust as provided by law, distribute Convertible
Subordinated Debentures in exchange for the Preferred Securities (which
direction is optional and wholly within the discretion of TXI), (vii) upon the
distribution of TXI Common Stock to all holders of Preferred Securities upon
conversion of all outstanding Preferred Securities or (viii) upon the entry of a
decree of a judicial dissolution of the Trust.
TRUST AGREEMENT EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Trust Agreement with respect to the
Trust Securities (a "Trust Agreement Event of Default"), provided that pursuant
to the Trust Agreement the holder of the Common Securities will be deemed to
have waived any Trust Agreement Event of Default with respect to the Common
Securities until all Trust Agreement Events of Default with respect to the
Preferred Securities have been cured, waived or otherwise eliminated. Until such
Trust Agreement Events of Default with respect to the Preferred Securities have
been so cured, waived or otherwise eliminated, the Property Trustee will be
deemed to be acting solely on behalf of the holders of the Preferred Securities
and only the holders of the Preferred Securities will have the right to direct
the Property Trustee with respect to certain matters under the Trust Agreement
and therefore under the Indenture. In the event that any Trust Agreement Event
of Default with respect to the Preferred Securities is waived by the holders of
the Preferred Securities as provided in the Trust Agreement, the holders of
Common Securities pursuant to the Trust Agreement have agreed that such waiver
also would constitute a waiver of such Trust Agreement Event of Default with
respect to the Common Securities for all purposes under the Trust Agreement
without any further act, vote or consent of the holders of Common Securities.
See "Description of the Preferred Securities -- Voting Rights."
If the Property Trustee fails to enforce its rights under the Convertible
Subordinated Debentures, any holder of Preferred Securities may directly
institute a legal proceeding against TXI to enforce the Property Trustee's
rights under the Convertible Subordinated Debentures, without first instituting
any legal proceeding against the Property Trustee or any other person or entity.
Notwithstanding the foregoing, if a Trust Agreement Event of Default has
occurred and is continuing and such event is attributable to the failure of TXI
to pay interest or principal on the Convertible Subordinated Debentures on the
date such interest or principal is otherwise payable (or in the case of
redemption, the redemption date), then a holder of Preferred Securities may
directly institute a proceeding for enforcement of payment to such holder of the
principal of or interest on the Convertible Subordinated Debentures having a
principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such holder on or after the respective due date specified in the
Convertible Subordinated Debentures. In connection with such action, TXI will be
subrogated to the rights of such holder of Preferred Securities under the Trust
Agreement to the extent of any payment made by
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TXI to such holder of Preferred Securities in such action. The holders of
Preferred Securities will not be able to exercise directly any other remedy
available to the holders of the Convertible Subordinated Debentures.
Upon the occurrence of a Trust Agreement Event of Default, the Property
Trustee, as the sole holder of the Convertible Subordinated Debentures, will
have the right under the Indenture to declare the principal of and interest on
the Convertible Subordinated Debentures to be immediately due and payable.
VOTING RIGHTS
Except as provided below, under the Trust Indenture Act and "Description of
the Preferred Securities Guarantee -- Amendments and Assignment" and as
otherwise required by law and the Trust Agreement, the holders of the Preferred
Securities will have no voting rights.
If (i) the Trust fails to pay Distributions in full on the Preferred
Securities for six consecutive quarterly distribution periods, or (ii) a Trust
Agreement Event of Default occurs and is continuing (each, an "Appointment
Event"), then the holders of the Preferred Securities, acting as a single class,
will be entitled by the majority vote of such holders to appoint a Special
Administrative Trustee. For purposes of determining whether the Trust has failed
to pay Distributions in full for six consecutive quarterly distribution periods,
Distributions shall be deemed to remain in arrears, notwithstanding any payments
in respect thereof, until full cumulative Distributions have been or
contemporaneously are paid with respect to all quarterly distribution periods
terminating on or prior to the date of payment of such cumulative Distributions.
Any holder of Preferred Securities (other than TXI or any of its affiliates)
shall be entitled to nominate any person to be appointed a Special
Administrative Trustee. Not later than 30 days after such right to appoint a
Special Administrative Trustee arises, the Administrative Trustees shall convene
a meeting of the holders of Preferred Securities for the purpose of appointing a
Special Administrative Trustee. If the Administrative Trustees fail to convene
such meeting within such 30-day period, the holders of not less then 10% of the
aggregate stated liquidation amount of the outstanding Preferred Securities will
be entitled to convene such meeting. The provisions of the Trust Agreement
relating to the convening and conduct of the meetings of the holders will apply
with respect to any such meeting. Any Special Administrative Trustee so
appointed shall cease to be a Special Administrative Trustee if the Appointment
Event pursuant to which the Special Administrative Trustee was appointed and all
other Appointment Events cease to be continuing. Notwithstanding the appointment
of any Special Administrative Trustee, TXI shall retain all rights under the
Indenture, including the right to declare an Extension Period as provided under
"Description of the Convertible Subordinated Debentures -- Option to Extend
Interest Payment Period." If such an Extension Period occurs, there will be no
Indenture Event of Default, and therefore no Trust Agreement Event of Default,
for failure to make any scheduled interest payment during the Extension Period
on the date originally scheduled.
The holders of a majority in aggregate liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or to direct the
exercise of any trust or power conferred upon the Property Trustee under the
Trust Agreement, including the right to direct the Property Trustee, as the
holder of the Convertible Subordinated Debentures, to (i) direct the time,
method or place of conducting any proceeding for any remedy available to the
Indenture Trustee or exercise any trust or power conferred on the Indenture
Trustee with respect to the Convertible Subordinated Debentures, (ii) waive any
past Indenture Event of Default which is waivable under the Indenture, (iii)
exercise any right to rescind or annul a declaration that the principal of all
the Convertible Subordinated Debentures shall be due and payable or (iv) consent
to any amendment, modification or termination of the Indenture or the
Convertible Subordinated Debentures where such consent shall be required. If the
Property Trustee fails to enforce its rights under the Convertible Subordinated
Debentures, a holder of Preferred Securities may institute a legal proceeding
directly against TXI to enforce the Property Trustee's rights under the
Convertible Subordinated Debentures without first instituting any legal
proceeding against the Property Trustee or any other person or entity. The
Property Trustee will notify all holders of the Preferred Securities of any
notice of default received from the Indenture Trustee with respect to the
Convertible Subordinated Debentures. Such notice will state that such Indenture
Event of Default also constitutes a Trust Agreement Event of Default. Except
with respect to directing the time, method and place of conducting a proceeding
for a remedy, the Property Trustee will not take any action described in clauses
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(i), (ii), (iii) or (iv) above unless the Property Trustee has obtained an
opinion of independent tax counsel to the effect that, as a result of such
action, the Trust will not be classified as other than a grantor trust for
United States federal income tax purposes.
In the event the consent of the Property Trustee, as the holder of the
Convertible Subordinated Debentures, is required under the Indenture with
respect to any amendment, modification or termination of the Indenture, the
Property Trustee will request the direction of the holders of the Preferred
Securities with respect to such amendment, modification or termination and will
vote with respect to such amendment, modification or termination as directed by
a majority in liquidation amount of the Preferred Securities voting together as
a single class. The Property Trustee will not take any such action in accordance
with the directions of the holders of the Preferred Securities unless the
Property Trustee has obtained an opinion of independent tax counsel to the
effect that, as a result of such action, the Trust will not be classified as
other than a grantor trust for United States federal income tax purposes.
A waiver of an Indenture Event of Default by the Property Trustee at the
direction of the holders of the Preferred Securities will constitute a waiver of
the corresponding Trust Agreement Event of Default.
Any required approval or direction of holders of Preferred Securities may
be given at a separate meeting of holders of Preferred Securities convened for
such purpose, at a meeting of all of the holders of Trust Securities or pursuant
to written consent. The Administrative Trustees will cause a notice of any
meeting at which holders of Preferred Securities are entitled to vote, or of any
matter upon which action by written consent of such holders is to be taken, to
be mailed to each holder of record of Preferred Securities. Each such notice
will include a statement setting forth (i) the date of such meeting or the date
by which such action is to be taken, (ii) a description of any resolution
proposed for adoption at such meeting on which such holders are entitled to vote
or of such matter upon which written consent is sought and (iii) instructions
for the delivery of proxies or consents. No vote or consent of the holders of
Preferred Securities will be required for the Trust to redeem and cancel
Preferred Securities or distribute Convertible Subordinated Debentures in
accordance with the Trust Agreement.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities at such time that are owned by TXI or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with TXI, will not be entitled to vote or consent and, for purposes of
such vote or consent, will be treated as if they were not outstanding.
The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "Book-Entry Only Issuance -- The
Depository Trust Company."
Except in the limited circumstances described above in connection with the
appointment of a Special Administrative Trustee, holders of the Preferred
Securities will have no rights to appoint or remove the trustees, who may be
appointed, removed or replaced solely by TXI, as the direct or indirect holder
of all the Common Securities.
MODIFICATION OF THE TRUST AGREEMENT
The Trust Agreement may be amended from time to time by the Property
Trustee, the Administrative Trustees and TXI, without the consent of any holders
of Preferred Securities, (i) to cure any ambiguity, correct or supplement any
provision therein which may be inconsistent with any other provision therein, or
to make any other provisions with respect to matters or questions arising under
the Trust Agreement, which shall not be inconsistent with the other provisions
of this Trust Agreement, or (ii) to modify, eliminate or add to any provisions
of the Trust Agreement to such extent as shall be necessary to ensure that the
Trust will be classified for United States federal income tax purposes as a
grantor trust at all times that any Preferred Securities are outstanding or to
ensure that the Trust will not be required to register as an investment company
under the 1940 Act; provided, however, that in the case of clause (i) or clause
(ii), such action shall not adversely affect in any material respect the
interests of any holder of Preferred Securities. Any such
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amendments of the Trust Agreement shall become effective when notice thereof is
given to the holders of Preferred Securities.
Any provision of the Trust Agreement may be amended by the Trustee and TXI
with (i) the consent of holders of Preferred Securities representing not less
than a majority (based upon liquidation amounts) of the Preferred Securities
then outstanding and (ii) receipt by the Trustees of an opinion of counsel to
the effect that such amendment or the exercise of any power granted to the
Trustees in accordance with such amendment will not affect the Trust's status as
a grantor trust for United States federal income tax purposes or the Trust's
exemption from status of an investment company under the 1940 Act; provided
that, without the consent of each affected holder, the Trust Agreement may not
be amended to (a) change the amount or timing of any Distribution on the
Preferred Securities or otherwise adversely affect the amount of any
Distribution required to be made in respect of the Preferred Securities as of a
specified date or (b) restrict the right of a holder to institute suit for the
enforcement of any such payment on or after such date.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other body, except as
described below. The Trust, with the consent of a majority of the Administrative
Trustees and without the consent of the holders of the Preferred Securities, may
consolidate, amalgamate, merge with or into, or be replaced by, or convey,
transfer or lease its properties and assets substantially as an entirety to a
trust organized as such under the laws of any State, provided, that (i) such
successor entity either (x) expressly assumes all of the obligations of the
Trust with respect to the Preferred Securities or (y) substitutes for the
Preferred Securities other securities having substantially the same terms as the
Preferred Securities (the "Successor Securities") so long as the Successor
Securities rank the same as the Preferred Securities rank in priority with
respect to distributions and payments upon liquidation, redemption and
otherwise, (ii) TXI expressly appoints a trustee of such successor entity
possessing the same powers and duties as the Property Trustee as the holder of
the Convertible Subordinated Debentures, (iii) the Successor Securities are
listed or traded, or any Successor Securities will be listed upon notification
of issuance, on any national securities exchange or other organization on which
the Preferred Securities are then listed or traded, (iv) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
cause the Preferred Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization, (v)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
holders of the Preferred Securities (including any Successor Securities) in any
material respect (other than with respect to any dilution of the holders'
interest in the new entity), (vi) such successor entity has a purpose
substantially identical to that of the Trust, (vii) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, TXI has
received an opinion from independent counsel to the Trust experienced in such
matters to the effect that (a) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Preferred Securities (including
any Successor Securities) in any material respect (other than with respect to
any dilution of the holders' interest in the new entity) and (b) following such
merger, consolidation, amalgamation, replacement, conveyance, transfer or lease,
neither the Trust nor such successor entity will be required to register as an
investment company under the 1940 Act and (viii) TXI owns all of the common
securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Preferred Securities Guarantee. Notwithstanding the foregoing, the Trust
will not, except with the consent of holders of 100% in liquidation amount of
the Preferred Securities, consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause the
Trust or the successor entity to be classified for United States federal Income
tax purposes as other than a grantor trust. In addition, so long as any
Preferred Securities are outstanding and are not held entirely by TXI, the Trust
may not voluntarily liquidate, dissolve, wind-up or terminate except as
described above under "Special Event Redemption or Distribution."
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BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depository for
the Preferred Securities. The Preferred Securities will be issued only as fully
registered securities registered in the name of Cede & Co. (DTC's nominee). One
or more fully registered global Preferred Securities certificates will be
issued, representing in the aggregate the total number of Preferred Securities,
and will be deposited with DTC,
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in a global Preferred
Security.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act (as
defined herein). DTC holds securities that its participants ("Participants")
deposit with DTC. DTC also facilitates the settlement among Participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book entry changes in Participants accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct Participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations ("Direct
Participants"). DTC is owned by a number of its Direct Participants and by the
NYSE, the American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to the DTC system also is available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
Preferred Securities ("Beneficial Owner") is in turn to be recorded on the
Direct or Indirect Participant's records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Preferred Securities.
Transfers of ownership interests in the Preferred Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in Preferred Securities, except in the event that use
of the book-entry system for the Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Preferred Securities deposited
by Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Preferred Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Preferred Securities. DTC's record reflect
only the identity of the Direct Participants to whose accounts such Preferred
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices will be sent to Cede & Co. if less than all of the
Preferred Securities are being redeemed, DTC will use a lottery to select
certain of the Preferred Securities to be redeemed in accordance with its
procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the Trust as soon as possible
after the record date. The
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Omnibus Proxy assigns Cede & Co. consenting or voting rights to those Direct
Participants to whose accounts the Preferred Securities are credited on the
record date (identified in a listing attached to the Omnibus Proxy). TXI and the
Trust believe the arrangements among DTC, Direct and Indirect Participants and
Beneficial Owners will enable the Beneficial Owners to exercise rights
equivalent in substance to the rights that can be directly exercised by a holder
of a beneficial interest in the Trust.
Distribution payments on the Preferred Securities will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payments on such
payment date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as in the case with securities
held for the account of customers in bearer form or registered in "street name,"
and will be the responsibility of such Participant and not of DTC, the Trust,
any trustee or TXI, subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of distributions to DTC is the
responsibility of the Trust, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursements of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Preferred
Security will not be entitled to receive physical delivery of Preferred
Securities. Accordingly, each Beneficial Owner must rely on the procedures of
DTC to exercise any rights under the Preferred Securities.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving reasonable notice to
the Trust. Under such circumstances, in the event that a successor securities
depositary is not obtained, Preferred Securities certificates are required to be
printed and delivered. Additionally, TXI may decide to discontinue use of the
system of book-entry transfers through DTC (or a successor depositary) with
respect to the Preferred Securities. In that event, certificates for the
Preferred Securities will be printed and delivered.
The information in this Section concerning DTC and DTC's book-entry system
have been obtained from sources that TXI and the Trust believe to be reliable,
but TXI and the Trust take no responsibility for the accuracy thereof.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a default, with respect to
the Trust Securities, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after default, shall exercise the same
degree of care as a prudent individual would exercise in the conduct of his or
her own affairs. Subject to such provisions, the Property Trustee is under no
obligation to exercise any of the powers vested in it by the Trust Agreement at
the request of any holder of Preferred Securities, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which might
be incurred thereby. The Property Trustee also serves as Preferred Guarantee
Trustee under the Preferred Securities Guarantee.
REGISTRAR, TRANSFER AGENT AND PAYING AGENT
In the event that the Preferred Securities do not remain in book-entry only
form, the Property Trustee will act as paying agent and may designate an
additional or substitute paying agent at any time. Registration of transfers of
Preferred Securities will be effected without charge by or on behalf of the
Trust, but upon payment (with the giving of such indemnity as the Trust or TXI
may require) in respect of any tax or other government charges which may be
imposed in relation to it. The Trust will not be required to register or cause
to be registered the transfer of Preferred Securities after such Preferred
Securities have been called for redemption.
GOVERNING LAW
The Trust Agreement and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
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MISCELLANEOUS
The Administrative Trustees are authorized and directed to operate the
Trust in such a way so that the Trust will not be deemed to be an "investment
company" required to be registered under the 1940 Act or characterized for
United States federal income tax purposes as other than a grantor trust. In this
connection, the Administrative Trustees and TXI are authorized to take any
action, not inconsistent with applicable law or the Trust Agreement, that each
of the Administrative Trustees and TXI determines in its discretion to be
necessary or desirable for such purposes, as long as such action does not
materially and adversely affect the interests of the holders of the Preferred
Securities.
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEE
Set forth below is a summary of information concerning the Preferred
Securities Guarantee that will be executed and delivered by TXI for the benefit
of the holders from time to time of Preferred Securities. The Preferred
Securities Guarantee will be qualified as an indenture under the Trust Indenture
Act. The First National Bank of Chicago will act as indenture trustee under the
Preferred Securities Guarantee (the "Preferred Guarantee Trustee") including for
purposes of the Trust Indenture Act. The terms of the Preferred Securities
Guarantee will be those set forth therein and those made part thereof by the
Trust Indenture Act. The following summary does not purport to be complete and
is subject in all respects to the provisions of, and is qualified in its
entirety by reference to, the Preferred Securities Guarantee, a copy of which is
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part, and the Trust Indenture Act. The Preferred Securities Guarantee will be
held by the Preferred Guarantee Trustee for the benefit of holders of the
Preferred Securities.
GENERAL
Pursuant to the Preferred Securities Guarantee, TXI will irrevocably agree,
to the extent set forth therein, to pay in full to the holders of the Preferred
Securities, the Guarantee Payments (as defined below) (without duplication of
amounts theretofore paid by the Trust), to the extent not paid by the Trust,
regardless of any defense, right of set-off or counterclaim that the Trust may
have or assert. The following payments or distributions with respect to the
Preferred Securities to the extent not paid or made by the Trust (the "Guarantee
Payments") will be subject to the Preferred Securities Guarantee (without
duplication): (i) any accrued and unpaid Distributions on the Preferred
Securities where TXI has made a payment of principal, premium or interest on the
Convertible Subordinated Debentures held by the Property Trustee, (ii) the
Redemption Price, including all accrued and unpaid dividends to the date of the
redemption, to the extent the Trust has funds available therefor with respect to
the Preferred Securities called for redemption by the Trust and (iii) upon a
liquidation of the Trust (other than in connection with the distribution of
Convertible Subordinated Debentures to the holders of Preferred Securities or
the redemption of all of the Preferred Securities), the lesser of (a) the
aggregate of the liquidation amount and all accrued and unpaid Distributions on
the Preferred Securities to the date of payment, to the extent the Trust has
funds available therefor and (b) the amount of assets of the Trust remaining
available for distribution to holders of Preferred Securities in liquidation of
the Trust. TXI's obligation to make a Guarantee Payment may be satisfied by
direct payment of the required amounts by TXI to the holders of Preferred
Securities or by causing the Trust to pay such amounts to such holders.
If TXI does not make interest payments on the Convertible Subordinated
Debentures held by the Property Trustee, the Trust will not make distributions
on the Preferred Securities. The Preferred Securities Guarantee will guarantee,
on a subordinated basis, the Guarantee Payments with respect to the Preferred
Securities from the time of issuance of the Preferred Securities, but will not
apply to the payment of Distributions and other payments on the Preferred
Securities when the Property Trustee does not have sufficient funds in the
Property Account to make such Distributions or other payments. The Preferred
Securities Guarantee, when taken together with TXI's obligations under the
Convertible Subordinated Debentures, the Indenture and the Trust Agreement,
including its obligations to pay costs, expenses, debts and
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liabilities of the Trust (other than with respect to the Common Securities),
will provide a full and unconditional guarantee on a subordinated basis by TXI
of amounts due on the Preferred Securities.
CERTAIN COVENANTS OF TXI
In the Preferred Securities Guarantee, TXI will covenant that, so long as
the Preferred Securities remain outstanding, if there shall have occurred and is
continuing any event that would constitute an event of default under the
Preferred Securities Guarantee or the Trust Agreement, then TXI will not and
shall not permit any subsidiary to, (i) declare or pay any dividends or
distributions on or redeem, purchase, acquire or make a liquidation payment with
respect to, any of TXI's capital stock, (ii) make any payment of principal of,
premium, if any, or interest on or repay, repurchase or redeem any debt security
of TXI that ranks pari passu with or junior in interest to the Convertible
Subordinated Debentures or (iii) make any guarantee payments with respect to any
guarantee by TXI of the debt securities of any subsidiary if such guarantee
ranks pari passu with or junior in interest to the Convertible Subordinated
Debentures (other than (a) dividends or distributions in TXI's capital stock,
(b) any declaration of a dividend in connection with the implementation of a
Rights Plan or the redemption or repurchase of any rights distributed pursuant
to a Rights Plan, (c) payments under the Preferred Securities Guarantee and (d)
purchases of TXI Common Stock related to the issuance of TXI Common Stock or
rights under any of TXI's benefit plans for its directors, officers or
employees, related to the issuance of TXI Common Stock or rights under a
dividend reinvestment and stock purchase plan or related to the issuance of TXI
Common Stock (or securities convertible or exchangeable for TXI Common Stock) as
consideration in an acquisition transaction that was entered into prior to the
commencement of such Extension Period).
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of Preferred Securities (in which case no consent will be
required), the Preferred Securities Guarantee may be amended only with the prior
approval of the holders of not less than 50% in aggregate liquidation amount of
the outstanding Preferred Securities. The manner of obtaining any such approval
of holders of the Preferred Securities is set forth under "Description of the
Preferred Securities -- Voting Rights." All guarantees and agreements contained
in the Preferred Securities Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of TXI and shall inure to the benefit of
the holders of the Preferred Securities then outstanding.
TERMINATION OF THE PREFERRED SECURITIES GUARANTEE
The Preferred Securities Guarantee will terminate and be of no further
force and effect as to the Preferred Securities upon full payment of the
Redemption Price of all Preferred Securities, upon distribution of the
Convertible Subordinated Debentures to the holders of Preferred Securities, or
upon full payment of the amounts payable upon liquidation of the Trust. See
"Description of the Convertible Subordinated Debentures -- Indenture Events of
Default" for a description of the events of default and enforcement rights of
the holders of Convertible Subordinated Debentures. The Preferred Securities
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of Preferred Securities must repay to the Trust or
TXI, or their respective successors, any sums paid to them under the Preferred
Securities or the Preferred Securities Guarantee.
EVENTS OF DEFAULT
An event of default under a Preferred Securities Guarantee will occur upon
the failure of TXI to perform any of its payment or other obligations
thereunder.
The holders of a majority in liquidation amount of the Preferred Securities
relating to such Preferred Securities Guarantee have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Preferred Guarantee Trustee in respect of the Preferred Securities Guarantee
or to direct the exercise of any trust or power conferred upon the Preferred
Guarantee Trustee under the Preferred
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Securities Guarantee. Any holder of Preferred Securities may institute a legal
proceeding directly against TXI to enforce such holder's rights under the
Preferred Securities Guarantee, without first instituting a legal proceeding
against the Trust, the Preferred Guarantee Trustee or any other person or
entity. Notwithstanding the foregoing, if a Trust Agreement Event of Default has
occurred and is continuing and such event is attributable to the failure of TXI
to pay interest or principal on the Convertible Subordinated Debentures on the
date such interest or principal is otherwise payable (or in the case of
redemption, the redemption date), then a holder of Preferred Securities may
directly institute a proceeding for enforcement of payment to such holder of the
principal of or interest on the Convertible Subordinated Debentures having a
principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such holder on or after the respective due date specified in the
Convertible Subordinated Debentures. In connection with such action, TXI will be
subrogated to the rights of such holder of Preferred Securities under the Trust
Agreement to the extent of any payment made by TXI to such holder of Preferred
Securities in such action. The holders of Preferred Securities will not be able
to exercise directly any other remedy available to the holders of the
Convertible Subordinated Debentures.
STATUS OF THE PREFERRED SECURITIES GUARANTEE
TXI's obligations under the Preferred Securities Guarantee to make the
Guarantee Payments will constitute an unsecured obligation of TXI and will rank
(i) subordinate and junior in right of payment to all other liabilities of TXI,
including the Convertible Subordinated Debentures, except those made pari passu
or subordinate by their terms, and (ii) pari passu with the most senior
preferred stock now or hereafter issued by TXI and with any guarantee now or
hereafter entered into by TXI in respect of any preferred security of any
affiliate of TXI. The terms of the Preferred Securities provide that each holder
of Preferred Securities by acceptance thereof agrees to the subordination
provisions and other terms of the Preferred Securities Guarantee. In addition,
because TXI is a holding company, its obligations under the Preferred Securities
Guarantee are effectively subordinated to all existing and future liabilities of
its subsidiaries.
The Preferred Securities Guarantee will constitute a guarantee of payment
and not of collection (that is, the guaranteed party may institute a legal
proceeding directly against the guarantor to enforce its rights under the
guarantee without first instituting a legal proceeding against any other person
or entity). The Preferred Securities Guarantee will be deposited with the
Property Trustee to be held for the benefit of the holders of the Preferred
Securities. Except as otherwise noted herein, the Property Trustee has the right
to enforce the Preferred Securities Guarantee on behalf of the holders of the
Preferred Securities. The Preferred Securities Guarantee will not be discharged
except by payment of the Guarantee Payments in full (without duplication of
amounts theretofore paid by the Trust).
INFORMATION CONCERNING THE PREFERRED GUARANTEE TRUSTEE
The Preferred Guarantee Trustee, prior to the occurrence of a default with
respect to a Preferred Securities Guarantee, undertakes to perform only such
duties as are specifically set forth in such Preferred Securities Guarantee and,
after default, shall exercise the same degree of care as a prudent individual
would exercise in the conduct of his or her own affairs. Subject to such
provisions, the Preferred Guarantee Trustee is under no obligation to exercise
any of the powers vested in it by the Preferred Securities Guarantee at the
request of any holder of Preferred Securities, unless offered reasonable
indemnity against the costs, expenses and liabilities which might be incurred
thereby. The Preferred Guarantee Trustee also serves as the Property Trustee.
GOVERNING LAW
The Preferred Securities Guarantee will be governed by and construed in
accordance with the laws of the State of New York.
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DESCRIPTION OF THE CONVERTIBLE SUBORDINATED DEBENTURES
Set forth below is a description of the terms of the Convertible
Subordinated Debentures. The following summary description does not purport to
be complete and is subject in all respects to, and is qualified in its entirety
by reference to, the Indenture, the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. The terms of the
Convertible Subordinated Debentures will include those stated in the Indenture
and those made a part of the Indenture by reference to the Trust Indenture Act.
Certain capitalized terms used herein are defined in the Indenture.
Under certain circumstances involving the dissolution of the Trust
following the occurrence of a Special Event, Convertible Subordinated Debentures
may be distributed to the holders of Trust Securities in liquidation of the
Trust. See "Description of the Preferred Securities -- Special Event Redemption
or Distribution."
If the Convertible Subordinated Debentures are distributed to the holders
of the Trust Securities, TXI will use its best efforts to have the Convertible
Subordinated Debentures listed on the NYSE or on such other exchange as the
Preferred Securities are then listed.
GENERAL
The Convertible Subordinated Debentures will be issued as unsecured junior
subordinated debt securities under the Indenture. The Convertible Subordinated
Debentures will be limited in aggregate principal amount to approximately
$206,185,567, such amount being the sum of the aggregate stated liquidation
amount of the Preferred Securities and the capital contributed by TXI in
exchange for the Common Securities (the "Payment").
The Convertible Subordinated Debentures are not subject to a sinking fund
provision. The Convertible Subordinated Debentures will mature on June 30, 2028
(such date, as it may be advanced as hereinafter described, the "Stated
Maturity"). If a Tax Event occurs, TXI will have the right, prior to the
termination of the Trust, to advance the Stated Maturity of the Convertible
Subordinated Debentures to the minimum extent required in order to allow for the
payments of interest in respect of the Convertible Subordinated Debentures to
continue to be tax deductible, but in no event shall the resulting maturity of
the Convertible Subordinated Debentures be less than 15 years from the date of
original issuance thereof. The Stated Maturity will be advanced only if, in the
opinion of counsel to TXI experienced in such matters, (i) after advancing the
Stated Maturity, interest paid on the Convertible Subordinated Debentures will
be deductible for United States federal income tax purposes and (ii) advancing
the Stated Maturity will not result in a taxable event to holders of the
Preferred Securities.
If TXI elects to advance the Stated Maturity of the Convertible
Subordinated Debentures, it will give notice to the Indenture Trustee, and the
Indenture Trustee will give notice of such change to the holders of the
Convertible Subordinated Debentures not less than 30 and not more than 60 days
prior to the effectiveness thereof.
If Convertible Subordinated Debentures are distributed to holders of the
Preferred Securities in liquidation of such holders' interests in the Trust,
such Convertible Subordinated Debentures will initially be issued as a Global
Security (as defined below). As described herein, under certain limited
circumstances, Convertible Subordinated Debentures may be issued in certificated
form in exchange for a Global Security. See "-- Book-Entry and Settlement." In
the event Convertible Subordinated Debentures are issued in certificated form,
the Convertible Subordinated Debentures will be in denominations of $50 and
integral multiples thereof and may be registered for transfer or exchanged at
the offices described below. Payments on Convertible Subordinated Debentures
issued as Global Securities will be made to the depositary for the Convertible
Subordinated Debentures. In the event Convertible Subordinated Debentures are
issued in certificated form, principal and interest will be payable, the
transfer of the Convertible Subordinated Debentures will be registrable and
Convertible Subordinated Debentures will be exchangeable for Convertible
Subordinated Debentures of other denominations of a like aggregate principal
amount at the corporate trust
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office of the Indenture Trustee in New York, New York; provided, that payment of
interest may be made at the option of TXI by check mailed to the address of the
persons entitled thereto.
The Indenture does not contain provisions that afford holders of
Convertible Subordinated Debentures protection in the event of a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction involving TXI.
SUBORDINATION
The Indenture provides that the Convertible Subordinated Dentures are
subordinated and junior in right of payment to all Senior Indebtedness of TXI.
No payment of the principal of, premium, if any, or interest on the Convertible
Subordinated Debentures may be made: (i) during the pendency of any
receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement,
adjustment, composition or other judicial proceeding relative to TXI unless the
holders of Senior Indebtedness shall have received payment in full of all
amounts due or to become due on such Senior Indebtedness, or provision shall
have been made for such payment in cash or cash equivalents or otherwise in a
manner satisfactory to the holders of Senior Indebtedness; (ii) if any
Convertible Subordinated Debentures are declared due and payable before their
Stated Maturity unless the holders of the Senior Indebtedness outstanding at the
time such Convertible Subordinated Debentures so become due and payable shall
have received payment in full of all amounts due on or in respect of such Senior
Indebtedness (including any amounts due upon acceleration), or provision shall
have been made for such payment in cash or cash equivalents or otherwise in a
manner satisfactory to the holders of Senior Indebtedness; or (iii) during the
continuation of any default in the payment of principal of, premium, if any, or
interest on any Senior Indebtedness, or if any event of default with respect to
any Senior Indebtedness shall have occurred and be continuing and shall have
resulted in such Senior Indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise have become due and payable,
unless and until such event of default shall have been cured or waived or shall
have ceased to exist and such acceleration shall have been rescinded or
annulled, or if any judicial proceeding shall be pending with respect to any
such default in payment or such event of default, unless all amounts due or to
become due on such Senior Indebtedness have been paid in full.
The term "Senior Indebtedness" means the principal of, premium, if any, and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to TXI whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt (as
defined in the Indenture) of TXI, whether incurred on or prior to the date of
this Indenture or thereafter incurred, unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are not superior in right of payment to the Convertible
Subordinated Debentures or to other Debt which is pari passu with, or
subordinated to, the Convertible Subordinated Debentures; provided, however,
that Senior Indebtedness shall not be deemed to include (i) any Debt of TXI
which, when incurred and without respect to any election under Section 1111(b)
of the Bankruptcy Reform Act of 1978, was without recourse to TXI, (ii) any Debt
of TXI to any of its subsidiaries, (iii) Debt to any employee of TXI, (iv) Debt
which by its terms is subordinated to trade accounts payable or accrued
liabilities arising in the ordinary course of business to the extent that
payments made to the holders of such Debt by the holders of the Convertible
Subordinated Debentures as a result of the subordination provisions of the
Indenture would be greater than such payments otherwise would have been (absent
giving effect to clause (iv)) as a result of any obligation of such holders of
such Debt to pay amounts over to the obligees on such trade accounts payable or
accrued liabilities arising in the ordinary course of business as a result of
subordination provisions to which such Debt is subject, and (v) the Convertible
Subordinated Debentures.
The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued by TXI. As of February 28, 1998, Senior Indebtedness of TXI
aggregated approximately $382.8 million. In addition, because TXI is a holding
company, its obligations under the Convertible Subordinated Debentures will be
effectively subordinated to all existing and future liabilities of its
subsidiaries.
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CONVERSION RIGHTS
General
The Convertible Subordinated Debentures are convertible at any time, at the
option of the holder thereof and in the manner described below, into fully paid
and nonassessable shares of TXI Common Stock at an initial conversion rate of
0.72218 shares of TXI Common Stock for each $50 in aggregate principal amount of
Convertible Subordinated Debentures (equal to a conversion price (the
"Conversion Price") of $69.235 per share of TXI Common Stock, subject to
adjustment as described under "-- Conversion Price Adjustments.") A holder of
Convertible Subordinated Debentures may convert any portion of the principal
amount of the Convertible Subordinated Debentures into that number of fully paid
and nonassessable shares of TXI Common Stock (calculated as to each conversion
to the nearest 1/100th of a share) obtained by dividing the principal amount of
the Convertible Subordinated Debenture to be converted by the Conversion Price.
In case a Convertible Subordinated Debenture or portion thereof is called for
redemption, such conversion right in respect of the Convertible Subordinated
Debenture or portion so called shall expire at 5:00 p.m. (New York City time) on
the Business Day immediately preceding the corresponding redemption date, unless
TXI defaults in making the payment due upon redemption. TXI's delivery upon
conversion of the fixed number of shares of TXI Common Stock into which the
Convertible Subordinated Debentures are convertible (together with the cash
payment, if any, in lieu of any fractional share) shall be deemed to satisfy
TXI's obligation to pay the principal amount at maturity of the portion of the
Convertible Subordinated Debentures so converted and any unpaid interest accrued
on such Convertible Subordinated Debentures at the time of such conversion.
Accrued interest will not be paid on Convertible Subordinated Debentures
that are converted, nor will any payment, allowance or adjustment be made for
accumulated and unpaid interest, whether or not in arrears, on converted
Convertible Subordinated Debentures, except that if any Convertible Subordinated
Debenture is converted (i) on or after a record date for payment of interest
thereon, the amount of the Distributions payable on the related payment date
with respect to such Convertible Subordinated Debenture will be paid by the
converting holder to the Trust and the interest payable on the related payment
date with respect to such Convertible Subordinated Debenture will be distributed
to the holder on such payment date, despite such conversion, and (ii) during an
Extension Period and after the Property Trustee mails a notice of redemption
with respect to the Convertible Subordinated Debentures that are converted,
accrued and unpaid interest through the date of conversion on such Convertible
Subordinated Debentures called for redemption will be distributed to the holder
who converts such Convertible Subordinated Debentures, which payment shall be
made on the redemption date. Except as provided above, TXI will not be required
to make any payment, allowance or adjustment upon any conversion on account of
any accumulated and unpaid interest accrued on the Convertible Subordinated
Debentures surrendered for conversion, or on account of any accumulated and
unpaid dividends, if any, on the shares of TXI Common Stock issued upon such
conversion. Convertible Subordinated Debentures will be deemed to have been
converted immediately prior to 5:00 p.m. (New York City time) on the Conversion
Date.
Shares of TXI Common Stock issued upon conversion of Convertible
Subordinated Debentures will be validity issued, fully paid and nonassessable.
No fractional shares of TXI Common Stock will be issued as a result of
conversion, but in lieu thereof such fractional interest will be paid in cash.
See "Certain Federal Income Tax Consequences -- Conversion of Preferred
Securities Into TXI Common Stock."
Conversion Price Adjustments
The Conversion Price shall be subject to adjustment (without duplication)
from time to time as follows:
Stock Dividends and Stock Splits. If TXI (i) pays a dividend or makes a
distribution with respect to the TXI Common Stock in shares of TXI Common Stock,
(ii) subdivides the outstanding shares of TXI Common Stock, (iii) combines the
outstanding shares of TXI Common Stock into a smaller number of shares or (iv)
issues by reclassification of the shares of TXI Common Stock any shares of
capital stock of TXI, then the Conversion Price in effect immediately prior to
such action will be adjusted so that the holder of any Convertible Subordinated
Debentures thereafter surrendered for conversion will be entitled to receive the
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number of shares of capital stock of TXI which such holder would have owned
immediately following such action had such Convertible Subordinated Debentures
been converted immediately prior thereto. Any such adjustment will become
effective immediately after the record date in the case of a dividend or other
distribution and immediately after the effective date in case of a subdivision,
combination or reclassification (or immediately after the record date if a
record date shall have been established for such event).
Rights or Warrants. If TXI issues rights or warrants to all holders of the
TXI Common Stock entitling them to subscribe for or purchase shares of TXI
Common Stock at a price per share less than the Current Market Price (as defined
herein) per share of TXI Common Stock, the Conversion Price shall be adjusted to
equal the price determined by multiplying the Conversion Price in affect
immediately prior to the date of issuance of such rights or warrants by a
fraction, the numerator of which will be the number of shares of TXI Common
Stock outstanding on the date of issuance of such rights or warrants plus the
number of shares which the aggregate offering price of the total number of
shares so offered for subscription or purchase would purchase at such Current
Market Price, and the denominator of which will be the number of shares of TXI
Common Stock outstanding on the date of issuance of such rights or warrants plus
the number of additional shares of TXI Common Stock offered for subscription or
purchase. If any such rights or warrants in respect of which an adjustment shall
have been, made shall expire unexercised, the Conversion Price will be
readjusted at the time of such expiration to the Conversion Price that would
have been in effect if no such adjustment had been made on account of the
distribution or issuance of such expired rights or warrants.
Other Distributions. If TXI, by dividend or otherwise, distributes to all
holders of the TXI Common Stock evidences of its indebtedness, shares of any
class or series of capital stock, cash or assets (including securities, but
excluding any rights or warrants referred to above, any dividend or distribution
paid exclusively in cash and any dividend or distribution referred to above),
the Conversion Price will be reduced to the price determined by multiplying the
Conversion Price in effect immediately prior to such distribution by a fraction,
the numerator of which will be the Current Market Price per share of the TXI
Common Stock on the date fixed for the payment of such distribution (the
"Reference Date") less the fair market value (as determined in good faith by the
Board of Directors) on the Reference Date of the portion of the evidences of
indebtedness, shares of capital stock, cash and assets so distributed applicable
to one share of TXI Common Stock and the denominator of which will be the
Current Market Price per share of TXI Common Stock. In the event that such
distribution is not so paid or made, the Conversion Price will be adjusted to be
the Conversion Price that would then be in effect if such distribution had not
occurred,
Liquidating Dividends. If TXI pays or makes a dividend or other
distribution on the TXI Common Stock exclusively in cash (excluding all cash
dividends paid out of the retained earnings of the Company), the Conversion
Price shall be reduced to the price determined by multiplying the Conversion
Price in effect immediately prior to such dividend or distribution by a
fraction, the numerator of which will be the Current Market Price per share of
TXI Common Stock on the date fixed for the payment of such dividend or
distribution less the amount of cash so distributed (and not excluded as
provided in the above parenthetical phrase) applicable to one share of TXI
Common Stock and the denominator of which will be such Current Market Price per
share of the TXI Common Stock. Such reduction will become effective immediately
prior to the opening of business on the day following the date fixed for the
payment of such distribution; provided, however, that in the event the portion
of the cash so distributed applicable to one share of TXI Common Stock is equal
to or greater than the Current Market Price per share of the TXI Common Stock on
the record date for the distribution of the cash, in lieu of the foregoing
adjustment, adequate provision shall be made so that each holder of Convertible
Subordinated Debentures will have the right to receive upon conversion the
amount of cash such holder would have received had such holder converted each
Convertible Subordinated Debenture immediately prior to such record date. In the
event that such dividend or distribution is not so paid or made, the Conversion
Price will be adjusted to be the Conversion Price which would then be in effect
if such record date had not been fixed.
Tender or Exchange Offers. If TXI or any of its subsidiaries makes a tender
or exchange offer (other than an odd-lot offer) for all or any portion of the
TXI Common Stock and such tender or exchange offer involves the payment by TXI
or such subsidiary of consideration per share of TXI Common Stock having a fair
market value (as determined in good faith by the Board of Directors) at the last
time (the "Expiration
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Time") tenders or exchanges may be made pursuant to such tender or exchange
offer that exceeds 110% of the Current Market Price per share of TXI Common
Stock on the Trading Day next succeeding the Expiration Time, the Conversion
Price shall be reduced to the price determined by multiplying the Conversion
Price in effect immediately prior such Expiration Time by a fraction, the
numerator of which shall be the number of outstanding shares of TXI Common Stock
(including any tendered or exchanged shares) at the Expiration Time multiplied
by the Current Market Price per share of TXI Common Stock on the Trading Day
next succeeding the Expiration Time and the denominator of which will be the sum
of (x) the fair market value of the aggregate consideration payable to
stockholders based on the acceptance of all shares validly tendered or exchanged
and not withdrawn as of the Expiration Time (the shares deemed so accepted, up
to any such maximum, being referred to as the "Purchased Shares") and (y) the
product of the number of shares of TXI Common Stock outstanding (less any
Purchased Shares) at the Expiration Time and the Current Market Price per share
of TXI Common Stock on the Trading Day next succeeding the Expiration Time, such
reduction to become effective immediately prior to the opening of business on
the day following the Expiration Time.
Definitions. The "Current Market Price" per share of TXI Common Stock on
any date in question will be the average of the daily Closing Prices (as defined
in the Indenture) for the five consecutive Trading Days (as defined in the
Indenture) selected by TXI commencing not more than 20 Trading Days before, and
ending not later than the earlier of the day in question or, if applicable, the
day before the "ex" date with respect to the issuance or distribution requiring
such computation. The term "ex" date, (i) when used with respect to any issuance
or distribution, means the first date on which the TXI Common Stock trades
regular way on the NYSE or on such successor securities exchange as the TXI
Common Stock may be listed or in the relevant market from which the Closing
Prices were obtained without the right to receive such issuance or distribution
and (ii) when used with respect to any tender or exchange offer, means the first
date on which the TXI Common Stock trades regular way on such securities
exchange or in such market after the Expiration Time of such offer.
No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
Conversion Price; provided, however, that any adjustments which are not required
to be made shall be carried forward and taken into account in determining
whether any subsequent adjustment shall be required.
No adjustment of the Conversion Price will be made upon the issuance of any
shares of TXI Common Stock pursuant to any present or future plan providing for
the reinvestment of dividends or interest payable on securities of TXI and the
investment of additional optional amounts in shares of TXI Common Stock under
any such plan, or the issuance of any shares of TXI Common Stock or options or
rights to purchase such shares pursuant to any present or future employee
benefit plan or program of TXI or pursuant to any option, warrant, right, or
exercisable, exchangeable or convertible security which does not constitute an
issuance to all holders of TXI Common Stock of rights or warrants entitling
holders of such rights or warrants to subscribe for or purchase TXI Common Stock
at less than the Current Market Price. If any action would require adjustment of
the Conversion Price pursuant to more than one of the anti-dilution provisions,
only one adjustment shall be made and such adjustment shall be the amount of
adjustment that has the highest absolute value to holders of the Convertible
Subordinated Debentures.
CERTAIN COVENANTS
If (i) there shall have occurred any event that would constitute an Event
of Default under the Indenture, (ii) TXI shall be in default with respect to its
payment of any obligations under the Preferred Securities Guarantee or (iii) TXI
shall have given notice of its election of an Extension Period as provided in
the Indenture and such period, or any extension thereof, shall be continuing,
then TXI shall not and shall not permit any subsidiary to, (i) declare or pay
any dividends or distributions on or redeem, purchase, acquire or make a
liquidation payment with respect to, any of TXI's capital stock, (ii) make any
payment of principal of, premium, if any, or interest on or repay, repurchase or
redeem any debt security of TXI that ranks pari passu with or junior in interest
to the Convertible Subordinated Debentures or (iii) make any guarantee payments
with respect to any guarantee by TXI of the debt securities of any subsidiary if
such guarantee ranks
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pari passu with or junior in interest to the Convertible Subordinated Debentures
(other than (a) dividends or distributions in TXI's capital stock, (b) any
declaration of a dividend in connection with the implementation of a Rights Plan
or the redemption or repurchase of any rights distributed pursuant to a Rights
Plan, (c) payments under the Preferred Securities Guarantee and (d) purchases of
TXI Common Stock related to the issuance of TXI Common Stock or rights under any
of TXI's benefit plan for its directors, officers or employees, related to the
issuance of TXI Common Stock or rights under a dividend reinvestment and stock
purchase plan or related to the issuance of TXI Common Stock (or securities
convertible are exchangeable for TXI Common Stock) as consideration in an
acquisition transaction that was entered into prior to the commencement of such
Extension Period).
For so long as the Preferred Securities remain outstanding, TXI will (i)
directly or indirectly maintain 100% ownership of the Common Securities of the
Trust; provided, however, that any permitted successor of TXI under the
Indenture may succeed to TXI's ownership of such Common Securities and (ii) use
its reasonable efforts to cause the Trust (a) to remain a statutory business
trust, except in connection with the distribution of Convertible Subordinated
Debentures to the holders of Preferred Securities in liquidation of the Trust,
the redemption of all of the Preferred Securities of the Trust, or certain
mergers, consolidations or amalgamations, each as permitted by the Trust
Agreement, and (b) otherwise to continue to be classified as a grantor trust for
United States federal income tax purposes.
OPTIONAL REDEMPTION
TXI shall have the right to redeem the Convertible Subordinated Debentures,
in whole or in part, from time to time, on or after June 30, 2001, or at any
time in certain circumstances upon the occurrence of a Tax Event as described
under "Description of the Preferred Securities -- Special Event Redemption or
Distribution," upon not less than 30 nor more than 60 days' notice, at a
redemption price equal to 100% of the principal amount to be redeemed plus any
accrued and unpaid interest, including Additional Interest (as defined herein),
if any, to the redemption date. If a partial redemption of the Preferred
Securities resulting from a partial redemption of the Convertible Subordinated
Debentures would result in the delisting of the Preferred Securities, TXI may
redeem the Convertible Subordinated Debentures only in whole.
MANDATORY REDEMPTION
The Convertible Subordinated Debentures will mature on June 30, 2028, and
may be redeemed, in whole or in part, at any time on or after June 30, 2001, or
at any time, in whole or in part, in certain circumstances upon the occurrence
of a Tax Event.
POSSIBLE TAX LEGISLATION OR ADVERSE TAX DECISIONS
Certain legislative proposals made in 1996 and 1997, if they had been
enacted, would have adversely affected the ability of the Company to deduct
interest paid on the Convertible Subordinated Debentures. Although these
proposals were not enacted, there is no assurance that after the date hereof
legislation adversely affecting the ability of the Company to deduct the
interest payable on the Convertible Subordinated Debentures will not be enacted.
If adverse legislation is enacted in the future and applied to the Convertible
Subordinated Debentures, such legislation could give rise to a Tax Event which
could, in certain circumstances, require the dissolution of the Trust or permit
TXI to redeem the Convertible Subordinated Debentures or advance the Stated
Maturity of the Convertible Subordinated Debentures.
In addition, the Service recently asserted that interest payable on a
security with characteristics and issued in circumstances similar to the
characteristics and issuance of the Convertible Subordinated Debentures was not
deductible for United States federal income tax purposes. The taxpayer in that
case has filed a petition in the United States Tax Court challenging the IRS's
position on this matter. If this matter is litigated and the Tax Court sustains
the Service's position, such judicial decision could give rise to a Tax Event
which could, in certain circumstances, require the dissolution of the Trust or
permit TXI to redeem the Convertible Subordinated Debentures.
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Because of the possibility of adverse future legislation, case law, and/or
IRS positions, there is no assurance that a Tax Event will not occur.
INTEREST
Each Convertible Subordinated Debenture will bear interest at the annual
rate of 5.5% from the original date of issuance, payable quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year (each, an "Interest
Payment Date"), commencing September 30, 1998, to the person in whose name such
Convertible Subordinated Debenture is registered, subject to certain exceptions,
at the close of business on the Business Day next preceding such Interest
Payment Date. In the event the Convertible Subordinated Debentures do not
continue to remain in book-entry only form, TXI will select a record date which
shall be 15 days prior to each Interest Payment Date.
Interest on the Convertible Subordinated Debentures payable for any full
quarterly period shall be computed on the basis of a 360-day year of twelve
30-day months and interest on the Convertible Subordinated Debentures for any
partial period shall be computed on the basis of the number of days elapsed in a
360-day year of twelve 30-day months. In the event that any date on which
interest is payable on the Convertible Subordinated Debentures is not a Business
Day, then payment of the interest payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay), except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
TXI will have the right at any time, and from time to time, during the term
of the Convertible Subordinated Debentures to defer payments of interest by
extending the interest payment period for a period not exceeding 20 consecutive
quarters, provided that no Extension Period may extend beyond the maturity of
the Convertible Subordinated Debentures. At the end of an Extension Period, TXI
will pay all interest then accrued and unpaid (including any Additional
Interest) (together with interest thereon at the rate specified for the
Convertible Subordinated Debentures to the extent permitted by applicable law).
During any such Extension Period, TXI will not and shall not permit any
subsidiary to, (i) declare or pay any dividends or distributions on or redeem,
purchase, acquire or make a liquidation payment with respect to, any of TXI's
capital stock, (ii) make any payment of principal of, premium, if any, or
interest on or repay, repurchase or redeem any debt security of TXI that ranks
pari passu with or junior in interest to the Convertible Subordinated Debentures
or (iii) make any guarantee payments with respect to any guarantee by TXI of the
debt securities of any subsidiary if such guarantee ranks pari passu with or
junior in interest to the Convertible Subordinated Debentures (other than (a)
dividends or distributions in TXI's capital stock, (b) any declaration of a
dividend in connection with the implementation of a Rights Plan or the
redemption or repurchase of any rights distributed pursuant to a Rights Plan,
(c) payments under the Preferred Securities Guarantee and (d) purchases of TXI
Common Stock related to the issuance of TXI Common Stock or rights under any of
TXI's benefit plans for its directors, officers or employees, related to the
issuance of TXI Common Stock or rights under a dividend reinvestment and stock
purchase plan or related to the issuance of TXI Common Stock (or securities
convertible or exchangeable for TXI Common Stock) as consideration in an
acquisition transaction that was entered into prior to the commencement of such
Extension Period). Prior to the termination of any such Extension Period, TXI
may further defer payments of interest by extending the interest payment period,
provided that such Extension Period together with all such previous and further
extensions thereof may not exceed 20 consecutive quarters and no Extension
Period may extend beyond the maturity of the Convertible Subordinated
Debentures. Upon the termination of Extension Period and the payment of all
amounts then due, TXI may elect a new Extension Period, as if no Extension
Period had previously been declared, subject to the above requirements. No
interest during an Extension Period, except at the end thereof, shall be due and
payable. TXI has no current intention of exercising its rights to defer payments
of interest by extending the interest payment period on the Convertible
Subordinated Debentures. If the Property Trustee shall be the sole holder of the
Convertible Subordinated Debentures, TXI
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shall give the Administrative Trustees and the Property Trustee notice of its
selection of such Extension Period one Business Day prior to the earlier of (i)
the date distributions on the Preferred Securities are payable or (ii) the date
the Administrative Trustees are required to give notice to the NYSE or other
applicable self-regulatory organization or to holders of the Preferred
Securities of the record date or the date such distribution is payable, but in
any event not less than one Business Day prior to such record date. The
Administrative Trustees will give notice of TXI's election of such Extension
Period to the holders of the Preferred Securities. If the Property Trustee shall
not be the sole holder of the Convertible Subordinated Debentures, TXI will give
the holders of the Convertible Subordinated Debentures notice of its selection
of such Extension Period ten Business Days prior to the earlier of (i) the next
Interest Payment Date or (ii) the date TXI is required to give notice to the
NYSE or other applicable self-regulatory organization or to holders of the
Convertible Subordinated Debentures of the record or payment date of such
related interest payment.
ADDITIONAL INTEREST
If at any time the Trust shall be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in any
such case, TXI will pay as additional interest ("Additional Interest") such
additional amounts as shall be required so that the net amounts received and
retained by the Trust after paying such taxes, duties, assessments or other
governmental charges will be not less than the amounts the Trust would have
received had no such taxes, duties, assessments or other governmental changes
been imposed.
INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default shall occur and be continuing, the
Property Trustee, as the holder of the Convertible Subordinated Debentures, will
have the right to declare the principal of and the interest on the Convertible
Subordinated Debentures (including Additional Interest, if any) and any other
amounts payable under the Indenture to be forthwith due and payable and to
enforce its other rights as a creditor with respect to the Convertible
Subordinated Debentures.
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Event of Default"
with respect to the Convertible Subordinated Debentures:
(a) failure for 30 days to pay interest on the Convertible
Subordinated Debentures, including any Additional Interest in respect
thereof, when due; provided, however, that a valid extension of the
interest payment period by TXI shall not constitute a default in the
payment of interest for this purpose;
(b) failure to pay principal or premium, if any, on the Convertible
Subordinated Debentures when due whether at maturity or upon earlier
redemption;
(c) failure to observe or perform any other covenant contained in the
Indenture for 90 days after written notice to TXI from the Indenture
Trustee or the holders of at least 25% in principal amount of the
outstanding Convertible Subordinated Debentures;
(d) certain events of bankruptcy, insolvency, or reorganization of
TXI; or
(e) the voluntary or involuntary dissolution, winding-up or
termination of the Trust, except in connection with the distribution of
Convertible Subordinated Debentures to the holders of Preferred Securities
in liquidation of the Trust and in connection with certain mergers,
consolidations or amalgamation permitted by the Trust Agreement.
The holders of a majority in aggregate outstanding principal amount of the
Convertible Subordinated Debentures have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Indenture
Trustee. The Indenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Convertible Subordinated Debentures may
declare the principal due and payable immediately on default, but the holders of
a majority in aggregate outstanding principal amount may annul such declaration
and waive the default if the default has been cured and a sum sufficient to pay
all
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matured installments of interest and principal due otherwise than by
acceleration and any applicable premium has been deposited with the Indenture
Trustee.
The holders of a majority in aggregate outstanding principal amount of the
Convertible Subordinated Debentures affected thereby, on behalf of the holders
of all the Convertible Subordinated Debentures, may waive any past default,
except (i) a default in the payment of principal, premium, if any, or interest
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration and
any applicable premium has been deposited with the Indenture Trustee) or (ii) a
default in the covenant of TXI not to declare or pay dividends on, or redeem,
purchase or acquire any of its capital stock during an Extension Period. An
Indenture Event of Default also constitutes a Trust Agreement Event of Default.
The holders of Preferred Securities in certain circumstances have the right to
direct the Property Trustee to exercise its rights as the holder of the
Convertible Subordinated Debentures. See "Description of the Preferred
Securities -- Trust Agreement Events of Default" and "Description of the
Preferred Securities -- Voting Rights."
Notwithstanding the foregoing, if a Trust Agreement Event of Default has
occurred and is continuing and such event is attributable to the failure of TXI
to pay interest or principal on the Convertible Subordinated Debentures on the
date such interest or principal is otherwise payable, a holder of Preferred
Securities may institute a direct action for payment on or after the respective
due date specified in the Convertible Subordinated Debentures. TXI may not amend
the Indenture to remove the foregoing right to bring a direct action without the
prior written consent of the holders of all of the Preferred Securities.
Notwithstanding any payment made to such holder of Preferred Securities by TXI
in connection with such a direct action, TXI will remain obligated to pay the
principal of or interest on the Convertible Subordinated Debentures held by the
Trust or Property Trustee, and TXI shall be subrogated to the rights of the
holder of such Preferred Securities with respect to payments on the Preferred
Securities to the extent of any payments made by TXI to such holder in any such
direct action. The holders of Preferred Securities will not be able to exercise
directly any other remedy available to the holders of the Convertible
Subordinated Debentures.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Preferred Securities in connection with the
voluntary or involuntary dissolution, winding-up or liquidation of the Trust as
a result of the occurrence of a Special Event, the Convertible Subordinated
Debentures will be issued in the form of one or more global certificates (each,
a "Global Security") registered in the name of the depositary or its nominee.
Except under the limited circumstances described below, Convertible Subordinated
Debentures represented by the Global Security will not be exchangeable for, and
will not otherwise be issuable as, Convertible Subordinated Debentures in
definitive form. The Global Securities described above may not be transferred
except by the depositary to a nominee of the depositary or by a nominee of the
depositary to the depositary or another nominee of the depositary or to a
successor depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in such a Global
Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Convertible
Subordinated Debentures in definitive form and will not be considered the
Holders (as defined in the Indenture) thereof for any purpose under the
Indenture, and no Global Security representing Convertible Subordinated
Debentures shall be exchangeable, except for another Global Security of like
denomination and tenor to be registered in the name of the depositary or its
nominee or to a successor depositary or its nominee. Accordingly, each
beneficial owner must rely on the procedures of the depositary and, if such
person is not a Participant, on the procedures of the Participant through which
such person owns its interest, to exercise any rights of a Holder under the
Indenture.
If Convertible Subordinated Debentures are distributed to holders of
Preferred Securities in liquidation of such holders' interests in the Trust, DTC
will act as securities depositary for the Convertible Subordinated Debentures.
For a description of DTC and the specific terms of the depository arrangements,
see "Description
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of the Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust
Company." The description therein of DTC's book-entry system and DTC's practices
as they relate to purchases, transfers, notices and payments with respect to the
Preferred Securities apply in all material respects to any debt obligations
represented by one or more Global Securities held by DTC. TXI may appoint a
successor to DTC or any successor depositary in the event DTC or such successor
depositary is unable or unwilling to continue as depositary.
None of TXI, the Trust, the Indenture Trustee, any Paying Agent and any
other agent of TXI or the Indenture Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in a Global Security for such Convertible
Subordinated Debentures or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
A Global Security will be exchangeable for Convertible Subordinated
Debentures registered in the names of persons other than the depositary or its
nominee only if (i) the depositary notifies TXI that it is unwilling or unable
to continue as a depositary for such Global Security and no successor depositary
shall have been appointed, or if at any time the depositary ceases to be a
clearing agency registered under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), at a time when the depositary is required to be so
registered to act as such depositary and no successor depositary shall have been
appointed, (ii) TXI in its sole discretion determines that such Global Security
shall be so exchangeable or (iii) there shall have occurred an Event of Default
with respect to the Convertible Subordinated Debentures. Any Global Security
that is exchangeable pursuant to the preceding sentence will be exchangeable for
Convertible Subordinated Debentures registered in such names as the depositary
shall direct. It is expected that such instructions will be based upon
directions received by the depositary from its Participants with respect to
ownership of beneficial interests in such Global Security.
In the event the Convertible Subordinated Debentures are not represented by
one or more Global Securities, certificates evidencing Convertible Subordinated
Debentures may be presented for registration of transfer (with the form of
transfer endorsed thereon duly executed) or exchange, at the office of the
Securities Registrar or at the office of any transfer agent designated by TXI
for such purpose with respect to the Convertible Subordinated Debentures,
without service charge and upon payment of any taxes and other governmental
charges as described in the Indenture. Such registration of transfer or exchange
will be effected upon the Securities Registrar or such transfer agent, as the
case may be, being satisfied with the documents of title and identity of the
person making the request. TXI has appointed the Indenture Trustee as Securities
Registrar with respect to the Convertible Subordinated Debentures. TXI may at
any time rescind the designation of any such transfer agent or approve a change
in the location through which any such transfer agent acts, except that TXI will
be required to maintain a transfer agent at the place of payment. TXI may at any
time designate additional transfer agents with respect to the Convertible
Subordinated Debentures.
In the event of any redemption in part, TXI will not be required to (i)
issue, register the transfer of or exchange Convertible Subordinated Debentures
during a period beginning at the opening of business 15 days before any
selection for redemption of Convertible Subordinated Debentures and ending at
the close of business on the earliest date on which the relevant notice of
redemption is deemed to have been given to all holders of the Convertible
Subordinated Debentures and (ii) register the transfer of or exchange any
Convertible Subordinated Debentures so selected for redemption, in whole or in
part, except the unredeemed portion of any Convertible Subordinated Debentures
being redeemed in part.
PAYMENT AND PAYING AGENTS
Payment of principal of and premium (if any) on the Convertible
Subordinated Debentures will be made only against surrender to the Paying Agent
of the Convertible Subordinated Debentures. Principal of and any premium and
interest, if any, on Convertible Subordinated Debentures will be payable,
subject to any applicable laws and regulations, at the office of such Paying
Agent or Paying Agents as TXI may designate from time to time, except that at
the option of TXI payment of any interest may be made by check mailed to the
address of the person entitled thereto as such address shall appear in the
Securities Register with respect to
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the Convertible Subordinated Debentures. Payment of interest on Convertible
Subordinated Debentures on any Interest Payment Date will be made to the person
in whose name the Convertible Subordinated Debentures (or predecessor security)
is registered at the close of business on the Regular Record Date for such
interest payment.
The Indenture Trustee will act as Paying Agent with respect to the
Convertible Subordinated Debentures. TXI may at any time designate additional
Paying Agents or rescind the designation of any Paying Agents or approve a
change in the office through which any Paying Agent acts, except that TXI will
be required to maintain a Paying Agent at the place of payment.
All amounts paid by TXI to a Paying Agent for the payment of the principal
of or premium or interest, if any, on the Convertible Subordinated Debentures
which remain unclaimed at the end of two years after such principal, premium, if
any, or interest shall have become due and payable will be repaid to TXI and the
holder of such Convertible Subordinated Debentures will thereafter look only to
TXI for payment thereof.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting TXI and the Indenture Trustee,
with the consent of the holders of not less than a majority in principal amount
of the Convertible Subordinated Debentures, to modify the Indenture or any
supplemental indenture affecting that series or the rights of the Holders of the
Convertible Subordinated Debentures; provided, that no such modification may,
without the consent of the Holder of each outstanding Convertible Subordinated
Debenture affected thereby, (i) extend the fixed maturity of the Convertible
Subordinated Debentures, or reduce the principal amount thereof, or reduce the
rate or extend the time of payment of interest thereon, or reduce any premium
payable upon the redemption thereof, without the consent of the Holder of
Convertible Subordinated Debentures so affected or (ii) reduce the percentage of
Convertible Subordinated Debentures, the Holders of which are required to
consent to any such supplemental indenture.
In addition, TXI and the Indenture Trustee may execute, without the consent
of Holders of the Convertible Subordinated Debentures, any supplemental
indenture for certain other usual purposes including the creation of any new
series of convertible subordinated debentures.
CONSOLIDATION, MERGER AND SALE
The Indenture provides that TXI will not consolidate with or merge into any
other corporation or convey, transfer or lease its assets substantially as an
entirety unless (i) the successor is a corporation organized in the United
States and expressly assumes the due and punctual payment of the principal of,
premium, if any, and interest on all Convertible Subordinated Debentures issued
thereunder and the performance of every other covenant of the Indenture on the
part of TXI and (ii) immediately thereafter no Event of Default and no event
that, after notice or lapse of time, or both, would become an Event of Default,
shall have happened and be continuing. Upon any such consolidation, merger,
conveyance or transfer, the successor corporation shall succeed to and be
substituted for TXI under the Indenture and thereafter the predecessor
corporation shall be relieved of all obligations and covenants under the
Indenture and the Convertible Subordinated Debentures.
DEFEASANCE AND DISCHARGE
Under the terms of the Indenture, TXI will be discharged from any and all
obligations in respect of the Convertible Subordinated Debentures (except in
each case for certain obligations to register the transfer of or exchange
Convertible Subordinated Debentures, replace stolen, lost or mutilated
Convertible Subordinated Debentures, maintain paying agencies and hold funds for
payment in trust) if TXI deposits with the Indenture Trustee, in trust, cash or
government obligations, in an amount sufficient to pay all the principal of, and
interest on, the Convertible Subordinated Debentures on the dates such payments
are due in accordance with the terms of the Convertible Subordinated Debentures.
For federal income tax purposes, any such defeasance of the Convertible
Subordinated Debentures will be treated as a taxable exchange of the Convertible
Subordinated Debentures for an issue of obligations of the
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trust or a direct interest in the cash or government securities held in the
Trust. In that case, holders of the Preferred Securities would recognize gain or
loss as if the trust obligations or the cash or government obligations
deposited, as the case may be, had actually been received by them in exchange
for their Preferred Securities. Such holders thereafter would be required to
include in income a share of the income, gain or loss of the Trust. The amount
so required to be included in income could be a different amount than would be
includable in the absence of defeasance. Holders of the Preferred Securities
should consult their own tax advisors as to the specific consequences of
defeasance.
GOVERNING LAW
The Indenture and the Convertible Subordinated Debentures will be governed
by, and construed in accordance with, the internal laws of the State of New
York.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee, prior to default, undertakes to perform only such
duties as are specifically set forth in the Indenture and, after default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the Indenture
Trustee is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Convertible Subordinated Debentures,
unless offered reasonable indemnity by such holder against the costs, expenses
and liabilities which might be incurred thereby. The Indenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Indenture Trustee reasonable
believes that repayment or adequate indemnity is not reasonably assured to it.
MISCELLANEOUS
TXI will have the right at all times to assign any of its rights or
obligations under the Indenture to a direct or indirect wholly-owned subsidiary
of TXI; provided, that in the event of any such assignment, TXI will remain
liable for all the their respective obligations. Subject to the foregoing, the
Indenture will be binding upon an inure to the benefit of the parties thereto
and their respective successors and assigns. The Indenture provides that it may
not otherwise be assigned by the parties thereto.
The Indenture will also provide that TXI will pay all fees and expenses
related to (i) the offering of the Trust Securities and the Convertible
Subordinated Debentures, (ii) the organization, maintenance and dissolution of
the Trust, (iii) the retention of the Administrative Trustees and (iv) the
enforcement by the Property Trustee of the rights of holders of Preferred
Securities.
EFFECT OF OBLIGATIONS UNDER THE CONVERTIBLE SUBORDINATED DEBENTURES
AND THE PREFERRED SECURITIES GUARANTEE
As set forth in the Trust Agreement, the sole purpose of the Trust is to
issue Trust Securities and invest the proceeds thereof in the Convertible
Subordinated Debentures.
As long as payments of interest and other payments are made when due on the
Convertible Subordinated Debentures, such payments will be sufficient to cover
Distributions and payments due on the Preferred Securities primarily because (i)
the aggregate principal amount of Convertible Subordinated Debentures will be
equal to the sum of the aggregate stated liquidation amount of the Preferred
Securities; (ii) the interest rate and interest and other payment dates on the
Convertible Subordinated Debentures will match the distribution rate and
distribution and other payment dates for the Preferred Securities; (iii) TXI
will pay all costs and expenses of the Trust; and (iv) the Trust Agreement
provides that the Trustees will not cause or permit the Trust to, among other
things, engage in any activity that is not consistent with the purposes of the
Trust.
Payments of Distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are guaranteed by TXI as and to the extent set forth under
"Description of the Preferred Securities Guarantee." If TXI does not make
interest payments on
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the Convertible Subordinated Debentures purchased by the Trust, it is expected
that the Trust will not have sufficient funds to pay Distributions on the
Preferred Securities. The Preferred Securities Guarantee is a guarantee on a
subordinated basis from the time of its issuance, but does not apply to any
payment of Distributions unless and until the Trust has sufficient funds for the
payment of such distributions.
If TXI fails to make interest or other payments on the Convertible
Subordinated Debentures when due (taking into account any Extension Period), the
Trust Agreement provides a mechanism whereby the holders of the Preferred
Securities, using the procedures described in "Description of the Preferred
Securities -- Voting Rights," may (i) appoint a Special Administrative Trustee
and (ii) direct the Property Trustee to enforce its rights under the Convertible
Subordinated Debentures, including proceeding directly against TXI to enforce
the Convertible Subordinated Debentures. If the Property Trustee fails to
enforce its rights under the Convertible Subordinated Debentures, a holder of
Preferred Securities may institute a legal proceeding directly against TXI to
enforce the Property Trustee's rights under the Convertible Subordinated
Debentures without first instituting any legal proceeding against the Property
Trustee or any other person or entity. Notwithstanding the foregoing, if a Trust
Agreement Event of Default has occurred and is continuing and such event is
attributable to the failure of TXI to pay interest or principal on the
Convertible Subordinated Debentures on the date such interest or principal is
otherwise payable (or in the case of redemption, on the redemption date), then a
holder of Preferred Securities may institute an action for payment on or after
the respective due date specified in the Convertible Subordinated Debentures, in
connection with such action. TXI will be subrogated to the rights of such holder
of Preferred Securities under the Trust Agreement to the extent of any payment
made by TXI to such holder of Preferred Securities in such action. TXI, under
the Preferred Securities Guarantee, acknowledges that the Preferred Guarantee
Trustee will enforce the Preferred Securities Guarantee on behalf of the holders
of the Preferred Securities.
If TXI fails to make payments under the Preferred Securities Guarantee, the
Preferred Securities Guarantee provides a mechanism whereby the holders of the
Preferred Securities may direct the Preferred Guarantee Trustee to enforce its
rights thereunder. If the Preferred Guarantee Trustee fails to enforce the
Preferred Securities Guarantee, any holder of Preferred Securities may institute
a legal proceeding directly against TXI to enforce the Preferred Guarantee
Trustee's rights under the Preferred Securities Guarantee, without first
instituting a legal proceeding against the Trust, the Preferred Guarantee
Trustee or any other person or entity.
The Preferred Securities Guarantee, when taken together with TXI's
obligations under the Convertible Subordinated Debentures, the Indenture and the
Trust Agreement, including its obligations under the Indenture to pay costs,
expenses, debts and liabilities of the Trust (other than with respect to the
Trust Securities), will provide a full and unconditional guarantee of amounts
due on the Preferred Securities. See "Description of the Preferred Securities
Guarantee -- General."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the principal United States
federal income tax consequences of the purchase, ownership and disposition of
the Preferred Securities to a holder that is a citizen or resident of the United
States, a corporation, partnership or other entity created or organized under
the laws of the United States or any state thereof or the District of Columbia
or an estate or trust described in Section 7701(a)(30) of the Code (a "Holder").
Except as set forth below, this summary does not address the United States
federal income tax consequences to persons other than Holders.
This summary is based on the United States federal income tax laws,
regulations and rulings and decisions now in effect, all of which are subject to
change, possibly on a retroactive basis. This summary does not address the tax
consequences applicable to investors that may be subject to special tax rules
such as banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies, tax-exempt
investors or persons that will hold the Preferred Securities as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment or as other than a
capital asset. This summary also does not address the tax consequences to
persons that have a functional currency other than the U.S. dollar or the tax
consequences to
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shareholders, partners or beneficiaries of a Holder. Further, it does not
include any description of any alternative minimum tax consequences or the tax
laws of any state or local government or of any foreign government that may be
applicable to a Holder.
CLASSIFICATION OF TXI CAPITAL TRUST I
Locke Purnell Rain Harrell (A Professional Corporation), counsel to TXI, is
of the opinion that, under current law and assuming full compliance with the
terms of the Indenture and the Trust Agreement (and certain other documents),
TXI Capital Trust I will be classified as a "grantor trust" for federal income
tax purposes and will not be classified as an association taxable as a
corporation or a partnership. Each Holder will be treated as owning an undivided
beneficial interest in the Convertible Subordinated Debentures. Accordingly,
each Holder will be required to include in its gross income any interest or
accrued original issue discount ("OID") with respect to its allocable share of
Convertible Subordinated Debentures. Investors should be aware that any opinion
of Locke Purnell Rain Harrell does not address any other issue and is not
binding on the Internal Revenue Service (the "Service") or the courts.
CLASSIFICATION OF CONVERTIBLE SUBORDINATED DEBENTURES
TXI, the Trust and the holders of the Preferred Securities (by acceptance
of a beneficial interest in the Convertible Subordinated Debentures) will agree
to treat the Convertible Subordinated Debentures as indebtedness for all United
States federal income tax purposes. In connection with the issuance of the
Convertible Subordinated Debentures, Locke Purnell Rain Harrell will deliver its
opinion that, under current law and based on certain representations, facts and
assumptions set forth in such opinion, the Convertible Subordinated Debentures
should be classified as indebtedness for United States federal income tax
purposes.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Unless the Convertible Subordinated Debentures are issued with OID, stated
interest on the Convertible Subordinated Debentures will be taxable to a Holder
as ordinary income at the time such interest is paid (if the Holder uses the
cash method of accounting for tax purposes) or accrued (if the Holder uses the
accrual method of accounting for tax purposes). Under regulations of the United
States Treasury Department, the Convertible Subordinated Debentures will not be
considered issued with OID if the likelihood of TXI exercising its right to
defer interest is considered a "remote" contingency at the time the Convertible
Subordinated Debentures are issued. TXI believes that such likelihood is remote,
because exercise of its right to defer interest would prevent TXI from declaring
dividends on its capital stock. Accordingly, TXI intends to take the position
that the Convertible Subordinated Debentures will not be issued with OID.
However, the definition of the term "remote" in the regulations has not yet been
addressed in any rulings or other interpretations by the Service, and it is
possible that the Service would assert that the Convertible Subordinated
Debentures were issued with OID. A determination that the Convertible
Subordinated Debentures were issued with OID would not result in substantially
different United States federal income tax consequences to accrual method
taxpayers or to cash-method taxpayers whose taxable year is the calendar year.
Holders not described in the preceding sentence, if any, would recognize
acceleration of up to three months' accrued interest.
If, notwithstanding TXI's current belief, it does exercise its right to
defer interest payments, the Convertible Subordinated Debentures would be
treated as if they were retired and then reissued with OID at such time. In such
case, the amount of OID would generally be equal to the interest payable
thereafter.
If the Convertible Subordinated Debentures are treated as having been
issued or reissued with OID (either because TXI exercises its right to defer
interest payments or because the likelihood of exercise of such right is not
considered a remote contingency at the time of issuance), Holders would include
that interest in income on an accrual basis, regardless of their method of tax
accounting. The amount of OID that accrued in any quarter would approximately
equal the amount of interest that accrued on the Convertible Subordinated
Debentures in that quarter at the stated interest rate. If interest payments
were received later than the taxable
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year in which the interest accrued, OID treatment would have the effect of
accelerating the reporting of income for Holders who otherwise use a cash method
of tax reporting.
Corporate Holders of Preferred Securities will not be entitled to a
dividends-received deduction with respect to any interest earned with respect to
the Preferred Securities.
PREMIUM AND MARKET DISCOUNT
To the extent a Holder acquires its Preferred Securities at a price that is
greater or less than the principal payable at maturity (or, if the Convertible
Subordinated Debentures are treated as having been issued or reissued with OID,
the adjusted issue price) of such Holder's share of Convertible Subordinated
Debentures (which generally should approximate par plus any OID accrued with
respect to unpaid interest), the Holder will be deemed to have acquired its
interest in the Preferred Securities with premium or with market discount, as
the case may be. A Holder acquiring Preferred Securities at a premium may elect
to reduce the amount of interest payments (and will reduce the amount of OID, if
any) required to be included in income to reflect amortization of the premium
over the remaining term. A Holder acquiring Preferred Securities at a market
discount will also include the amount of such discount in income in accordance
with the market discount rules described below.
A Holder acquiring Preferred Securities at a market discount generally will
be required to recognize ordinary income to the extent of accrued market
discount upon the retirement of the underlying Convertible Subordinated
Debentures or, to the extent of any gain, upon the disposition of the Preferred
Securities. Such market discount would accrue ratably, or, at the election of
the Holder, under a constant yield method over the remaining term of the
Convertible Subordinated Debentures. A Holder will also be required to defer the
deduction of a portion of the interest paid or accrued on indebtedness incurred
to purchase or carry Preferred Securities acquired with market discount. In lieu
of the foregoing, a Holder may elect to include market discount in income
currently as it accrues on all market discount instruments acquired by such
Holder in the taxable year of the election or thereafter, in which case the
interest deferral rule will not apply.
RECEIPT OF CONVERTIBLE SUBORDINATED DEBENTURES UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Description of
the Preferred Securities -- Special Event Redemption or Distribution,"
Convertible Subordinated Debentures may be distributed to Holders in exchange
for the Preferred Securities and in liquidation of the Trust. Under current law,
such a distribution would be treated as a non-taxable event to each Holder, and
each Holder would receive an aggregate tax basis in the Convertible Subordinated
Debentures equal to such Holder's aggregate tax basis in its Preferred
Securities. A Holder's holding period in the Convertible Subordinated Debentures
so received in liquidation of the Trust would include the period for which the
Preferred Securities were held by such Holder.
SALE OF PREFERRED SECURITIES AND REDEMPTION OF CONVERTIBLE SUBORDINATED
DEBENTURES
A Holder that sells Preferred Securities, or whose Preferred Securities or
Convertible Subordinated Debentures (which shall have been distributed to
Holders upon liquidation of the Trust) are redeemed whether pursuant to a Tax
Event or otherwise, will recognize gain or loss equal to the difference between
its adjusted tax basis in the Preferred Securities or Convertible Subordinated
Debentures and the amount realized on the sale or redemption. A Holder's
adjusted tax basis in the Preferred Securities or Convertible Subordinated
Debentures generally will be its initial purchase price increased by OID, if
any, previously includible in such Holder's gross income to the date of
disposition (and the accrual of market discount, if any) and decreased by
payments (other than payments of interest not reflected in OID) received on the
Preferred Securities and/or Convertible Subordinated Debentures and by any
premium that the Holder has taken into account. Subject to the market discount
rules described above, any such gain or loss generally will be capital gain or
loss.
The Preferred Securities may trade at prices that do not accurately reflect
the value of accrued but unpaid interest with respect to the underlying
Convertible Subordinated Debentures. A Holder that uses the accrual method of
accounting for tax purposes (and a cash method Holder if the Convertible
Subordinated
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Debentures are deemed to have been issued with OID) and that disposes of
Preferred Securities between record dates for payments of Distributions thereon
will be required to include accrued but unpaid interest on the Convertible
Subordinated Debentures through the date of disposition in income as ordinary
income, and to add such amount to such Holder's adjusted tax basis in the pro
rata share of the underlying Convertible Subordinated Debentures deemed disposed
of. To the extent that the selling price is less than the Holder's adjusted tax
basis (so determined) a Holder will recognize a capital loss. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes.
CONVERSION OF PREFERRED SECURITIES INTO TXI COMMON STOCK
A Holder of Preferred Securities generally will not recognize income, gain
or loss upon the conversion through the Conversion Agent, of its Preferred
Securities into shares of TXI Common Stock. A Holder will, however, recognize
gain upon the receipt of cash in lieu of a fractional share of TXI Common Stock
equal to the amount of cash received less the Holder's tax basis in the
fractional share, and to the extent that the TXI Common Shares issued upon
conversion are treated as attributable to accrued interest on the Preferred
Securities. A Holder's obligation to include in income OID, if any, with respect
to the Preferred Securities would cease upon the date of conversion. To the
extent that the Preferred Securities converted are subject to accrued market
discount, as discussed above, the amount of the accrued market discount will
carry over to the TXI Common Stock on conversion, and gain on the disposition of
the TXI Common Stock will be treated as ordinary income on such disposition to
the extent of the accrued market discount. A Holder's tax basis in the TXI
Common Stock received upon exchange and conversion should generally be equal to
the Holder's tax basis in the Preferred Securities delivered to the Conversion
Agent for exchange less the basis allocated to any fractional share for which
cash is received and a Holder's holding period in the TXI Common Stock received
upon exchange and conversion will generally begin on the date that the Holder
acquired the Preferred Securities delivered to the Conversion Agent for
exchange.
ADJUSTMENT OF CONVERSION RATIO
Adjustments in the conversion price of the Preferred Securities made
pursuant to the anti-dilution provisions thereof to reflect distributions to
holders of TXI Common Stock that are taxable as dividends to such holders may
result in constructive distributions to Holders of Preferred Securities that
could be taxable to them as dividends pursuant to Section 305 of the Code.
Therefore, Holders of Preferred Securities could have an amount included in
gross income as a result of an event pursuant to which they received no cash or
property that could be used to pay any related tax.
POSSIBLE TAX LEGISLATION OR ADVERSE TAX DECISIONS
Certain legislative proposals made in 1996 and 1997, if they had been
enacted, would have adversely affected the ability of the Company to deduct
interest paid on the Convertible Subordinated Debentures. Although these
proposals were not enacted, there is no assurance that after the date hereof
legislation adversely affecting the ability of the Company to deduct the
interest payable on the Convertible Subordinated Debentures will not be enacted.
If adverse legislation is enacted in the future and applied to the Convertible
Subordinated Debentures, such legislation could give rise to a Tax Event which
could, in certain circumstances, require the dissolution of the Trust or permit
TXI to redeem the Convertible Subordinated Debentures or advance the Stated
Maturity of the Convertible Subordinated Debentures.
In addition, the Service recently asserted that interest payable on a
security with characteristics and issued in circumstances similar to the
characteristics and issuance of the Convertible Subordinated Debentures was not
deductible for United States federal income tax purposes. The taxpayer in that
case has filed a petition in the United States Tax Court challenging the IRS's
position on this matter. If this matter is litigated and the Tax Court sustains
the Service's position, such judicial decision could give rise to a Tax Event
which could, in certain circumstances, require the dissolution of the Trust or
permit TXI to redeem the Convertible Subordinated Debentures.
Because of the possibility of adverse future legislation, case law, and/or
IRS positions, there is no assurance that a Tax Event will not occur.
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FOREIGN INVESTORS
Subject to the discussion of backup withholding below, interest (including
OID) with respect to the Preferred Securities paid to a nonresident alien
individual, foreign corporation, foreign partnership or foreign estate or trust
(collectively, "United States Alien Holder") will be exempt from U.S.
withholding tax, provided that the United States Alien Holder complies with
applicable certification requirements (and does not actually or constructively
own 10% or more of the total combined voting owner of all classes of stock of
TXI and is not a controlled foreign corporation related to TXI or its
affiliates).
On October 14, 1997, the Service published in the Federal Register final
regulations (the "1997 Final Regulations") which affect the United States
taxation of United States Alien Holders. The 1997 Final Regulations are
effective for payments after December 31, 1999, regardless of the issue date of
the instrument with respect to which such payments are made, subject to certain
transition rules. In general, the 1997 Final regulations provide certification
requirements designed to simplify compliance by those responsible for
withholding on payments to United States Alien Holders. Among other provisions,
the 1997 Final Regulations provide, in the case of an entity classified as a
foreign partnership under United States tax principles, that the partners,
rather than the partnership, generally will be required to provide the required
certification to qualify for an exemption from withholding.
INFORMATION REPORTING TO HOLDERS
Subject to the qualifications discussed below, income on the Preferred
Securities will be reported to Holders on Form 1099, which forms should be
mailed to Holders of Preferred Securities by January 31 following each calendar
year.
The Trust will be obligated to report annually to Cede & Co., as Holder of
record of the Preferred Securities, the interest (and OID, if any) with respect
to the Preferred Securities that accrued during that year. The Trust currently
intends to report such information on Form 1099 prior to January 31 following
each calendar year even though the Trust is not legally required to report to
record Holders until April 15 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the Holder or the
United States Alien Holder complies with certain identification or certification
requirements. Any withheld amounts will be allowed as a credit against the
holder's United States federal income tax, if any, provided the required
information is provided to the Service.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
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CERTAIN ERISA CONSIDERATIONS
Before authorizing an investment in the Preferred Securities, fiduciaries
of pension, profit sharing or other employee benefit plans ("Plans") subject to
Employee Retirement Income Security Act of 1974, as amended ("ERISA") should
consider, among other matters, (i) ERISA's fiduciary standards (including its
prudence and diversification requirements), (ii) whether such fiduciaries have
authority to make such investment in the Preferred Securities under the
applicable Plan investment policies and governing instruments and (iii) rules
under ERISA and the Code that prohibit Plan fiduciaries from causing a Plan to
engage in a "prohibited transaction."
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well
as individual retirement accounts and Keogh plans subject to Section 4975 of the
Code (also "Plans"), from, among other things, engaging in certain transactions
involving "plan assets" with persons who are "parties in interest" under ERISA
or "disqualified persons" under the Code (collectively, "Parties in Interest")
with respect to such Plan. A violation of these "prohibit transaction" rules may
result in an excise tax or other liabilities under ERISA and/or Section 4975 of
the Code for such persons, unless exemptive relief is available under an
applicable statutory or administrative exemption. Such administrative exemptions
include prohibited transaction class exemptions ("PTCE's"), such as PTCE 96-23
(for certain transactions determined by in-house asset managers), PTCE 91-38
(for certain transactions involving bank collective investment funds), PTCE
95-60 (for certain transactions involving bank collective investment funds),
PTCE 95-60 (for certain transactions involving insurance company general
accounts), PTCE 90-1 (for certain transactions involving insurance company
pooled separate accounts) and PTCE 84-14 (for certain transactions determined by
independent qualified asset managers).
The Department of Labor has issued a regulation (29 C.F.R. Section
2510.3-101) (the "Plan Assets Regulation") concerning the definition of what
constitutes the assets of a Plan. The Plan Assets Regulation provides that, as a
general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan makes an
"equity" investment will be deemed, for purposes of ERISA, to be assets of the
investing Plan unless certain exceptions apply.
Pursuant to an exception contained in the Plan Assets Regulations, the
assets of the Trust would not be deemed to be "plan assets" of investing Plans
if the equity interests acquired by employee benefit plans are "publicly-offered
securities" -- that is, they are (i) widely held (i.e., owned by more than 100
investors independent of the issuer and of each other), (ii) freely transferable
and (iii) sold as part of an offering pursuant to an effective registration
statement under the Securities Act and then timely registered under Section
12(b) or 12(g) of the Exchange Act. It is expected that the Preferred Securities
will meet the criteria of "publicly-offered securities" above. The Underwriters
expect that the Preferred Securities will be held by at least 100 independent
investors at the conclusion of the offering; there are no restrictions imposed
on the transfer of the Preferred Securities; and the Preferred Securities will
be sold as part of an offering pursuant to an effective registration statement
under the Securities Act, and then will be timely registered under the Exchange
Act.
Although it is expected that the assets of the Trust should not be deemed
to be "plan assets" of an investing Plan, if TXI or the Trust is a Party in
Interest with respect to the Plan, in the absence of an applicable exemption,
the Plan's purchase of the Preferred Securities from the Company would likely
constitute a prohibited transaction under Section 406(a)(1)(a) of ERISA and
Section 4975(c)(1)(a) of the Code. In addition, in the absence of an applicable
exemption, certain other transactions coincident to the Preferred Securities may
involve a prohibited transaction, such as a distribution of the Convertible
Subordinated Debentures from the Trust to a Plan investor.
Any plans or other entities whose assets include Plan assets subject to
ERISA or Section 4975 of the Code proposing to acquire Preferred Securities
should consult with their own counsel to confirm that such investment will not
result in a prohibited transaction that is not subject to an exemption and will
satisfy any other applicable requirements of ERISA and the Code. Each purchaser
using assets of a Plan to acquire Preferred Securities will be deemed to have
represented that its purchase and holding of such Preferred Securities will not
result in a non-exempt prohibited transaction under ERISA or the Code or will be
covered
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by the exemptive relief provided by PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or
another applicable exemption.
Governmental Plans and certain church plans are not subject to ERISA, and
are also not subject to the prohibited transaction provisions of Section 4975 of
the Code. However, state laws or regulations governing the investment and
management of the assets of such plans may contain fiduciary and prohibited
transaction provisions similar to those under ERISA and the Code discussed
above. Accordingly, fiduciaries of governmental and church plans, in
consultation with their advisers, should consider the impact of their respective
state laws on investments in the Preferred Securities and the considerations
discussed above to the extent applicable.
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UNDERWRITING
The names of the Underwriters of the Preferred Securities offered hereby
and the aggregate number of Preferred Securities which each severally has agreed
to purchase from the Trust, subject to the terms and conditions specified in the
Underwriting Agreement among the Company, the Trust and the Underwriters, are as
follows:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS PREFERRED SECURITIES
------------ --------------------
<S> <C>
SBC Warburg Dillon Read Inc. ............................... 3,400,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 600,000
---------
Total............................................. 4,000,000
=========
</TABLE>
If any Preferred Securities offered hereby are purchased by the
Underwriters, all such Preferred Securities will be so purchased. The
Underwriting Agreement contains certain provisions whereby, if any Underwriter
defaults in its obligation to purchase such Preferred Securities, and the
aggregate obligations of the Underwriters so defaulting do not exceed 10% of the
Preferred Securities offered hereby, the remaining Underwriters, or some of
them, must assume such obligations.
The Preferred Securities offered hereby are being initially offered
severally by the Underwriters for sale at the price set forth on the cover page
hereof or at such price less a concession not in excess of $0.87 per share on
sales to certain dealers. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $0.10 per share on sales to certain other
dealers. The offering of the Preferred Securities is made for delivery when, as
and if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of the shares. After the
public offering, the public offering price, the concession and the reallowance
may be changed by the Underwriters.
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used to purchase the Convertible Subordinated Debentures
issued by TXI, the Underwriting Agreement provides that TXI will pay as
compensation for the Underwriters arranging the investment therein of such
proceeds an amount of $1.45 per Preferred Security (or $5,800,000 in the
aggregate) for the accounts of the Underwriters. Therefore, to the extent of
such sales, the aggregate amount of compensation will be less than that
specified in the preceding sentence.
Prior to this offering, there has been no public market for the Preferred
Securities. The Preferred Securities have been approved for listing on the NYSE
under the symbol "TXI PrS." Trading of the Preferred Securities on the NYSE is
expected to commence within a 30-day period after the initial delivery of the
Preferred Securities.
In order to meet one of the requirements for listing the Preferred
Securities on the NYSE, the Underwriters will undertake to sell the Preferred
Securities to a minimum of 400 holders and thereby establish at least 1,000,000
Preferred Securities in the public float having a minimum aggregate market value
of $4,000,000.
TXI and the Trust have agreed that, during a period of 30 days from the
date of this Prospectus, neither will offer, sell, contract to sell or otherwise
dispose of any securities of TXI or the Trust that are substantially similar to
the Preferred Securities, or that are convertible into or exchangeable for, or
otherwise represent a right to acquire, any such securities, except in the
offering or with the prior written consent of the Underwriters.
The Company has granted to the Underwriters an option, which may be
exercised within 30 days after the date of this Prospectus, to purchase up to an
additional 600,000 Preferred Securities to cover over-allotments, if any, on the
same terms per Preferred Security. To the extent the Underwriters exercise this
66
<PAGE> 69
option, each of the Underwriters will be obligated, subject to certain
conditions, to purchase the number of additional Preferred Securities
proportionate to such Underwriter's initial commitment.
The Company, and certain of the directors and executive officers of the
Company (who in the aggregate beneficially own 791,590 shares of the Company's
Common Stock), have agreed, subject to certain exceptions, that they will not
offer, sell, contract to sell, transfer or otherwise encumber or dispose of any
shares of the Company's Common Stock, or securities convertible or exchangeable
for shares of the Company's Common Stock, for a period of 90 days after the date
of this Prospectus without the prior written consent of SBC Warburg Dillon Read
Inc.
TXI and the Trust have agreed to indemnify the Underwriters and certain
other persons against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"), and to contribute to
payments the Underwriters may be required to make in respect thereof.
In connection with the offering of the Preferred Securities, the
Underwriters and any selling group members and their respective affiliates may
engage in transactions to stabilize, maintain or otherwise affect the market
price of the Preferred Securities. Specifically, the Underwriters may overallot
by selling more Preferred Securities than they are committed to purchase from
the Trust. In such a case, to cover all or part of the short position, the
Underwriters may purchase Preferred Securities in the open market following
completion of the initial offering of the Preferred Securities. The Underwriters
also may engage in stabilizing transactions in which they bid for, and purchase.
Preferred Securities at a level above that which might otherwise prevail in the
open market for the purpose of preventing or retarding a decline in the market
price of the Preferred Securities distributed by that Underwriter or dealer. Any
of the foregoing transactions may result in the maintenance of a price of the
Preferred Securities at a level above that which might otherwise prevail in the
open market. Neither TXI nor any Underwriter makes any representation or
prediction as to the direction or magnitude of any offer that the transactions
described above may have on the price of the Preferred Securities. The
Underwriters are not required to engage in any of the foregoing transactions,
and, if commenced, such transaction may be discontinued at anytime without
notice.
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment or financial services to
TXI and its affiliates, for which such Underwriters or their affiliates have
received or will receive customary fees and commissions.
LEGAL MATTERS
Certain matters of Delaware law relating to the Trust will be passed upon
for the Company by Morris, Nichols, Arsht & Tunnell, Wilmington, Delaware,
special counsel to the Company. Certain legal matters will be passed upon for
the Company by Locke Purnell Rain Harrell (A Professional Corporation), Dallas,
Texas, and for the Underwriters by Gibson, Dunn & Crutcher LLP, New York, New
York.
EXPERTS
The Consolidated Financial Statements of Texas Industries, Inc. as of May
31, 1995, 1996 and 1997, and for each of the three fiscal years then ended,
appearing in this Prospectus and the registration statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
67
<PAGE> 70
ADDITIONAL INFORMATION
The Company and the Trust have filed with the Securities and Exchange
Commission (the "Commission"), through the Electronic Data Gathering, Analysis
and Retrieval System ("EDGAR"), a registration statement on Form S-3 under the
Securities Act with respect to the Preferred Securities offered hereby (the
"Registration Statement"). This Prospectus, filed as part of the Registration
Statement, does not contain all of the information included in the Registration
Statement and the exhibits and schedules thereto, certain portions of which have
been omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company, the Trust and the Preferred
Securities offered hereby, reference is hereby made to the Registration
Statement and the exhibits and schedules filed therewith or incorporated by
reference thereto. Statements contained in this Prospectus as to the contents of
any contract, agreement or other document are not necessarily complete and in
each such instance, reference is made to the copy of such contract, agreement or
other document filed as an exhibit to the Registration Statement, including
documents incorporated by reference, for a more complete description of the
matters involved and each such statement shall be deemed qualified in its
entirety by such reference. The Registration Statement, including the exhibits
and schedules thereto, may be inspected without charge and copied at the offices
of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices located at 7
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may be obtained at the prescribed rates from the Commission's Public
Reference Section at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Electronic registration statements filed through EDGAR
may also be accessed electronically through the Commission's home page on the
World Wide Web at http://www.sec.gov.
The Company and the Trust are subject to the periodic reporting
requirements of the Exchange Act, and in accordance therewith, it files reports,
proxy statements and other information required thereby with the Commission via
EDGAR. Copies of such material may be inspected and copied at the offices of the
Commission and accessed electronically through the Commission's home page on the
World Wide Web. Reports, proxy statements, other required information statements
and other information concerning the Company may also be inspected at the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission
and are incorporated herein by reference:
1. Annual Report on Form 10-K for the fiscal year ended May 31, 1997.
2. Quarterly Report on Form 10-Q for the quarter ended August 31, 1997.
3. Quarterly Report on Form 10-Q for the quarter ended November 30, 1997.
4. Quarterly Report on Form 10-Q for the quarter ended February 28, 1998.
5. Current Report on Form 8-K dated July 30, 1997.
6. Current Report on Form 8-K dated September 16, 1997.
7. Current Report on Form 8-K dated January 26, 1998.
8. Proxy Statement for the Annual Meeting of Stockholders held on October
21, 1997.
9. The description of the Company's Common Stock contained in the Company's
Registration Statement on Form S-3 No. 2-80855) dated January 13, 1973.
All documents filed by the Company or the Trust pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering of the Preferred Securities hereby
shall be deemed to be incorporated by reference into this Prospectus and to be a
68
<PAGE> 71
part hereof from the date of filing of such documents. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which is or is deemed to be incorporated by reference herein modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any and all of the documents
incorporated herein by reference (not including the exhibits to such documents,
unless such exhibits are specifically incorporated by reference into such
documents). Requests for such copies should be directed to the Director-Investor
Relations, of the Company at Texas Industries, Inc., 1341 West Mockingbird Lane,
Dallas, Texas 75247-6913 or by telephone at (972) 647-6700.
69
<PAGE> 72
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 73
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets at May 31, 1997 and 1996........ F-3
Consolidated Statements of Income for the years ended May
31, 1997, 1996 and 1995................................... F-4
Consolidated Statements of Cash Flows for the years ended
May 31, 1997, 1996 and 1995............................... F-5
Consolidated Statements of Shareholders' Equity for the
years ended May 31, 1997, 1996, 1995 and 1994............. F-6
Notes to Consolidated Financial Statements.................. F-7
Consolidated Balance Sheets at February 28, 1998 (Unaudited)
and May 31, 1997.......................................... F-14
Consolidated Statements of Income (Unaudited) for the three
months ended February 28, 1998 and 1997 and the nine
months ended February 28, 1998 and 1997................... F-15
Consolidated Statements of Cash Flows (Unaudited) for the
nine months ended February 28, 1998 and 1997.............. F-16
Notes to Consolidated Financial Statements (Unaudited)...... F-17
</TABLE>
F-1
<PAGE> 74
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended May 31, 1997, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
July 8, 1997
F-2
<PAGE> 75
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MAY 31,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS
Cash...................................................... $ 19,834 $ 28,055
Notes and accounts receivable............................. 122,783 113,762
Inventories............................................... 167,146 150,526
Prepaid expenses.......................................... 34,613 32,574
-------- --------
TOTAL CURRENT ASSETS.............................. 344,376 324,917
OTHER ASSETS
Real estate and other investments......................... 14,920 19,751
Goodwill and other intangibles............................ 63,297 60,377
Other..................................................... 26,553 20,713
-------- --------
104,770 100,841
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements................................ 118,248 110,836
Buildings................................................. 66,156 60,610
Machinery and equipment................................... 815,019 766,434
-------- --------
999,423 937,880
Less allowances for depreciation.......................... 600,646 562,575
-------- --------
398,777 375,305
-------- --------
$847,923 $801,063
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable.................................... $ 51,021 $ 56,652
Accrued interest, wages and other items................... 36,909 35,446
Current portion of long-term debt......................... 13,452 13,474
-------- --------
TOTAL CURRENT LIABILITIES......................... 101,382 105,572
LONG-TERM DEBT.............................................. 176,056 160,209
DEFERRED FEDERAL INCOME TAXES AND OTHER CREDITS............. 80,080 80,139
MINORITY INTEREST........................................... 37,594 35,121
SHAREHOLDERS' EQUITY
Common stock, $1 par value................................ 25,067 12,534
Additional paid-in capital................................ 255,149 266,303
Retained earnings......................................... 262,774 193,929
Cost of common shares in treasury......................... (90,179) (52,744)
-------- --------
452,811 420,022
-------- --------
$847,923 $801,063
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 76
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE)
<S> <C> <C> <C>
NET SALES................................................... $973,824 $967,449 $830,526
COSTS AND EXPENSES (INCOME)
Cost of products sold..................................... 767,030 756,715 681,824
Selling, general and administrative....................... 76,535 68,852 58,275
Interest.................................................. 18,885 19,960 20,117
Other income.............................................. (11,848) (13,119) (7,571)
-------- -------- --------
850,602 832,408 752,645
-------- -------- --------
INCOME BEFORE THE FOLLOWING ITEMS.................... 123,222 135,041 77,881
Income taxes................................................ 41,189 47,256 25,700
-------- -------- --------
82,033 87,785 52,181
Minority interest in Chaparral.............................. (6,559) (7,831) (4,164)
-------- -------- --------
NET INCOME........................................ $ 75,474 $ 79,954 $ 48,017
======== ======== ========
Average common shares....................................... 22,243 22,742 24,851
Net income per common share................................. $ 3.40 $ 3.52 $ 1.94
======== ======== ========
Cash dividends.............................................. $ .25 $ .20 $ .15
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 77
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------
1997 1996 1995
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............................................. $ 75,474 $ 79,954 $ 48,017
Loss (gain) on disposal of assets....................... 2,131 977 (1,994)
Non-cash items
Depreciation, depletion and amortization............. 53,909 49,280 49,342
Deferred taxes....................................... 683 6,822 5,434
Undistributed minority interest...................... 5,684 6,771 3,028
Other -- net......................................... 6,367 6,454 4,798
Changes in operating assets and liabilities
Notes and accounts receivable........................ (12,570) (13,417) (22,608)
Inventories and prepaid expenses..................... (22,607) (22,921) 10,781
Accounts payable and accrued liabilities............. (3,552) 3,637 17,935
Real estate and investments.......................... 4,380 9,906 1,131
-------- --------- --------
Net cash provided by operations................. 109,899 127,463 115,864
INVESTING ACTIVITIES
Capital expenditures.................................... (85,188) (79,300) (48,751)
Proceeds from disposition of assets..................... 5,281 1,799 3,132
Other -- net............................................ (3,733) (3,154) (1,456)
-------- --------- --------
Net cash used by investing...................... (83,640) (80,655) (47,075)
FINANCING ACTIVITIES
Repayments of short-term borrowing...................... -- -- (15,000)
Proceeds of long-term borrowing......................... 69,206 97,552 50,485
Debt retirements........................................ (53,392) (126,593) (50,127)
Purchase of treasury shares............................. (41,572) (417) (54,688)
Purchase of Chaparral stock............................. (3,770) (12,506) --
Dividends paid.......................................... (5,361) (4,451) (3,618)
Other -- net............................................ 409 1,674 (1,619)
-------- --------- --------
Net cash used by financing...................... (34,480) (44,741) (74,567)
-------- --------- --------
Increase (decrease) in cash............................... (8,221) 2,067 (5,778)
Cash at beginning of year................................. 28,055 25,988 31,766
-------- --------- --------
Cash at end of year....................................... $ 19,834 $ 28,055 $ 25,988
======== ========= ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 78
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON
STOCK ADDITIONAL TREASURY TOTAL
PREFERRED $1 PAR PAID-IN RETAINED COMMON SHAREHOLDERS'
STOCK VALUE CAPITAL EARNINGS STOCK EQUITY
--------- ------- ---------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
May 31, 1994............................ $ 598 $12,534 $265,790 $ 75,511 $ (1,762) $352,671
Net income............................ 48,017 48,017
Cash dividends
Preferred stock -- $5 a share...... (30) (30)
Common stock -- $.15 a share....... (3,588) (3,588)
Treasury stock issued for bonuses and
options -- 40,508 shares........... 255 (323) 795 727
Treasury stock purchased -- 2,996,956
shares............................. (54,688) (54,688)
----- ------- -------- -------- -------- --------
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
===== ======= ======== ======== ======== ========
</TABLE>
At May 31, 1997, 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.
F-6
<PAGE> 79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Texas Industries, Inc. (the Company or TXI), through its subsidiaries, is a
producer of steel and cement/concrete products for the construction and
manufacturing industries. Chaparral Steel Company (Chaparral) produces beam,
merchant and special bar quality rounds, reinforcing bars and channels,
primarily for markets in North America and, under certain market conditions,
Europe and Asia. Cement/concrete operations supply cement and aggregates,
ready-mix, pipe, block and brick from facilities concentrated primarily in Texas
and Louisiana, with several products marketed throughout the U.S.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimates: The preparation of financial statements and accompanying notes
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported. Actual
results could differ from those estimates.
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and all subsidiaries. The minority interest
represents the separate public ownership of Chaparral, 15.5% at May 31, 1997 and
16.4% at May 31, 1996.
Property, Plant and Equipment: Property, plant and equipment is recorded at
cost. Provisions for depreciation are computed generally using the straight-line
method. Provisions for depletion of mineral deposits are computed on the basis
of the estimated quantity of recoverable raw materials.
Cash Equivalents: For cash flow purposes, temporary investments which have
maturities of less than 90 days when purchased are considered cash equivalents.
Earnings Per Share: Earnings per share are computed by deducting preferred
dividends from net income and adjusting for amortization of additional goodwill
in connection with the contingent payment for the acquisition of Chaparral, then
dividing this amount by the weighted average number of common shares outstanding
during the period, including common stock equivalents. Earnings per share and
all other common share information have been adjusted to give effect to the
two-for-one stock split in February 1997.
Statement of Financial Accounting Standards No. 128 "Earnings per Share"
(SFAS 128), which is not effective until December 15, 1997, will change the
method currently used to compute earnings per share and require the restatement
of all prior periods. The impact is expected to result in an increase in basic
earnings per share over primary earnings per share of $.08, $.09 and $.02, for
the fiscal years ended 1997, 1996 and 1995, respectively.
Intangible Assets: Goodwill and other intangibles is presented net of
accumulated amortization of $17.9 million at May 31, 1997 and $15.0 million at
May 31, 1996. Goodwill resulting from the acquisition of Chaparral of $57.2
million at May 31, 1997 and $59.2 million at May 31, 1996 (net of accumulated
amortization), is being amortized currently on a straight-line basis over a
40-year period. Other intangibles consisting primarily of goodwill and
non-compete agreements are being amortized on a straight-line basis over periods
of 2 to 15 years. Management reviews remaining goodwill and other intangibles
with consideration toward recovery through future operating results
(undiscounted) at the current rates of amortization.
Commissioning Costs: The Company's policy for new facilities is to
capitalize certain costs until the facility is substantially complete and ready
for its intended use. Chaparral substantially completed its large beam mill
during the third quarter of fiscal 1992. Deferred costs totaling $15.1 million
were amortized over a five-year period. The annual amount of amortization
charged to income was $2.0 million in 1997 and $3.0 million in 1996 and 1995.
Income Taxes: Accounting for income taxes uses the liability method of
recognizing and classifying deferred income taxes. The Company joins in filing a
consolidated return with its subsidiaries. Current and deferred tax expense is
allocated among the members of the group based on a stand-alone calculation of
the tax of the individual member.
F-7
<PAGE> 80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financial Instruments: The estimated fair value of each class of financial
instrument as of May 31, 1997 approximates carrying value except for Chaparral's
long-term debt. The fair value of long-term debt at May 31, 1997, estimated by
applying discounted cash flow analysis based on interest rates currently
available to the Company for such debt with similar terms and remaining
maturities, is approximately $198.2 million compared to the carrying amount of
$189.5 million.
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform to the 1997 presentation.
WORKING CAPITAL
Working capital totaled $243.0 million at May 31, 1997, compared to $219.3
million at the prior year-end.
Notes and accounts receivable of $122.8 million at May 31, 1997, compared
with $113.8 million in 1996, are presented net of allowances for doubtful
receivables of $2.5 million in 1997 and $3.1 million in 1996.
Inventories are stated at cost (not in excess of market) generally using
the last-in, first-out method (LIFO). If the average cost method (which
approximates current replacement cost) had been used, inventory values would
have been higher by $11.7 million in 1997 and $14.2 million in 1996.
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Finished products........................................... $ 77,021 $ 64,347
Work in process............................................. 27,162 23,345
Raw materials and supplies.................................. 62,963 62,834
-------- --------
$167,146 $150,526
======== ========
</TABLE>
LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Bank obligations, maturing through 2001, interest rates from $ 40,000 $ 9,000
6.31% to 6.38% (.625% over LIBOR).........................
Senior notes due through 2008, interest rates average 75,000 75,000
7.28%.....................................................
Senior notes of Chaparral, due through 2004, interest rates 56,000 64,000
average 10.2%.............................................
First mortgage notes of Chaparral, due through 1999, 8,182 14,320
interest rate 14.2%.......................................
Pollution control bonds, due through 2007, interest rate 7,935 8,615
6.38% (75% of prime)......................................
Other, maturing through 2005, interest rates from 8% to 2,391 2,748
10%.......................................................
-------- --------
189,508 173,683
Less current maturities..................................... 13,452 13,474
-------- --------
$176,056 $160,209
======== ========
</TABLE>
Annual maturities of long-term debt for each of the five succeeding years
are $13.5, $13.3, $9.0, $8.9 and $48.7 million.
The Company has available a bank-financed $100 million long-term line of
credit. In addition to the $40 million currently outstanding under this line,
$8.9 million has been utilized to support letters of credit.
F-8
<PAGE> 81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Commitment fees at a current annual rate of .22% are paid on the unused portion
of this line. In addition, Chaparral has available a bank-financed $10 million
short-term line of credit which will expire December 31, 1997, if not renewed.
The interest chargeable on borrowings under this line is .375% over LIBOR.
Commitment fees at an annual rate of .125% are paid on the unused portion of
this line.
Loan agreements contain covenants which provide for minimum working
capital, restrictions on purchases of treasury stock and payment of dividends on
common stock, and limitations on incurring certain indebtedness and making
certain investments. Under the most restrictive of these agreements, the
aggregate amount of annual cash dividends on common stock is limited based on
the ratio, excluding Chaparral, of earnings before interest, taxes, depreciation
and amortization plus dividends from Chaparral to fixed charges. In addition,
Chaparral loan agreements restrict dividends and advances to its shareholders,
including the parent company, to $52 million as of May 31, 1997. The Company and
Chaparral are in compliance with all loan covenant restrictions.
Property, plant and equipment, principally Chaparral's, carried at a net
amount of approximately $215.4 million at May 31, 1997 is mortgaged as
collateral for $9.4 million of secured debt.
The amount of interest paid was $19.3 million in 1997, $18.9 million in
1996 and $18.4 million in 1995. Interest capitalized totalled $190,000 in 1997.
SHAREHOLDERS' EQUITY
Common stock consists of:
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Shares authorized........................................... 40,000 40,000
Shares outstanding at May 31................................ 20,896 22,200
Average shares outstanding including equivalents............ 22,243 22,742
Shares held in treasury..................................... 4,171 2,867
Shares reserved for stock options and other................. 2,163 2,422
</TABLE>
There are authorized 100,000 shares of Cumulative Preferred Stock, no par
value, of which 20,000 shares are designated $5 Cumulative Preferred Stock
(Voting), redeemable at $105 per share and entitled to $100 per share upon
dissolution. On March 29, 1996 the Company redeemed and retired all outstanding
shares of such $5 Cumulative Preferred Stock. An additional 25,000 shares are
designated Series B Junior Participating Preferred Stock. The Series B Preferred
Stock is not redeemable and ranks, with respect to the payment of dividends and
the distribution of assets, junior to (i) all other series of the Preferred
Stock unless the terms of any other series shall provide otherwise and (ii) the
$5 Cumulative Preferred Stock. Pursuant to a Rights Agreement, in November 1996,
the Company distributed a dividend of one preferred share purchase right for
each outstanding share of the Company's Common Stock. Each right entitles the
holder to purchase from the Company one two-thousandth of a share of the Series
B Junior Participating Preferred Stock at a price of $122.50 per one
two-thousandth share of Series B Preferred Stock, subject to adjustment. The
rights will expire on November 1, 2006 unless the date is extended or the rights
are earlier redeemed or exchanged by the Company pursuant to the Rights
Agreement.
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 and therefore no compensation cost has
been recognized. If compensation cost had been determined based on the fair
value at the date of grant
F-9
<PAGE> 82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consistent with the method prescribed by Statement of Financial Accounting
Standard 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>
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Net income
As reported............................................... 75,474 79,954
Pro forma................................................. 74,272 79,548
Primary earnings per share
As reported............................................... 3.40 3.52
Pro forma................................................. 3.36 3.51
</TABLE>
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 fair value of each option grant is estimated on the date of grant for
purposes of the pro forma disclosures using the Black-Scholes option-pricing
model with the following weighted average assumptions used for grants made in
1997 and 1996, respectively: dividend yield of 1.05% and .89%, expected
volatility of 24% and 24%; risk-free interest rates of 6.38% and 6.15% and
expected lives of 6.4 and 6.4 years.
A summary of option transactions for the two years ended May 31, 1997
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES UNDER OPTION OPTION PRICE
---------------------- ----------------
1997 1996 1997 1996
--------- --------- ------ ------
<S> <C> <C> <C> <C>
Outstanding at June 1.............................. 1,232,598 1,096,882 $15.98 $12.70
Granted.......................................... 809,200 374,400 26.96 22.74
Exercised........................................ (234,067) (192,444) 10.35 11.05
Cancelled........................................ (10,600) (46,240) 22.66 13.45
--------- --------- ------ ------
Outstanding at May 31.............................. 1,797,131 1,232,598 $21.62 $15.98
Options exercisable at May 31...................... 347,491 329,918 $15.18 $11.04
Weighted-average fair value of options granted
during the year.................................. $ 9.46 $ 7.98
</TABLE>
As of May 31, 1997, the 1.8 million option shares outstanding have an
exercise price between $10.19 and $32.54 and a weighted-average remaining life
of 8.0 years. In addition, 240,440 shares were available for future grants.
INCOME TAXES
The Company made income tax payments of $39.5 million, $38.7 million, and
$19.7 million in 1997, 1996 and 1995, respectively.
The provisions for income taxes are composed of:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current..................................................... $40,506 $40,434 $20,266
Deferred.................................................... 683 6,822 5,434
------- ------- -------
Expense..................................................... $41,189 $47,256 $25,700
======= ======= =======
</TABLE>
F-10
<PAGE> 83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconcilement from statutory federal taxes to the above provisions
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Taxes at statutory rate............................... $43,127 $47,267 $27,258
Tax credit carryforwards.............................. -- -- (333)
Additional depletion.................................. (2,984) (2,707) (2,352)
Goodwill.............................................. 702 702 809
State income tax...................................... 912 1,905 552
Non taxable insurance benefits........................ (664) (561) (502)
Other -- net.......................................... 96 653 268
------- ------- -------
$41,189 $47,256 $25,700
======= ======= =======
</TABLE>
The components of the net deferred tax liability at May 31 are summarized
below:
<TABLE>
<CAPTION>
1997 1996
------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
Deferred compensation..................................... $ 5,523 $ 4,732
Expenses not currently tax deductible..................... 8,332 9,496
Tax cost in inventory..................................... 586 3,698
------- --------
Total deferred tax assets......................... 14,441 17,926
Deferred tax liabilities
Accelerated tax depreciation.............................. 64,154 65,481
Deferred real estate gains................................ 5,178 5,672
Commissioning costs....................................... -- 704
Other..................................................... 1,526 1,803
------- --------
Total deferred tax liabilities.................... 70,858 73,660
------- --------
Net tax liability........................................... 56,417 55,734
Less current portion (asset)................................ (6,236) (10,175)
------- --------
Net deferred tax liability.................................. $62,653 $ 65,909
======= ========
</TABLE>
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.
F-11
<PAGE> 84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $3.4 million in 1997, $2.9 million in
1996 and $2.6 million in 1995. 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 for these plans, included in selling, general and
administrative, was $14.8 million, $15.1 million and $8.9 million for 1997, 1996
and 1995, respectively.
Certain executives of Chaparral participate in a deferred compensation plan
based on a five-year average of earnings. Amounts recorded as expense
(reduction) under the plan were $1.9 million, $.7 million and $(.1) million for
1997, 1996 and 1995, respectively.
OPERATING LEASES
Total expense for operating leases for mobile equipment, office space and
other items (other than for mineral rights) amounted to $17.2 million in 1997,
$16.4 million in 1996 and $12.0 million in 1995. Non-cancelable operating leases
with an initial or remaining term of more than one year totaled $61.2 million at
May 31, 1997. Annual lease payments for the five succeeding years are $15.2
million, $8.8 million, $8.6 million, $8.0 million and $6.6 million.
BUSINESS SEGMENTS
Business segment information is presented on pages 9 and 10. Intersegment
sales, which are not material, are accounted for at prices comparable to normal
trade customer sales. 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.
F-12
<PAGE> 85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of quarterly financial information (in thousands
except per share):
<TABLE>
<CAPTION>
AUGUST NOVEMBER FEBRUARY MAY
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1997
- ------------------------------------------------
Net Sales
Steel......................................... $149,527 $143,637 $147,715 $175,797
Cement/concrete............................... 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
Cement/concrete............................... 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*................................... .87 .79 .47 1.29
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
1996
- ------------------------------------------------
Net Sales
Steel......................................... $138,141 $154,990 $158,954 $155,571
Cement/concrete............................... 93,963 89,271 76,086 100,473
-------- -------- -------- --------
232,104 244,261 235,040 256,044
======== ======== ======== ========
Operating profit
Steel......................................... 13,346 19,892 21,173 21,365
Cement/concrete............................... 24,844 21,903 13,685 29,696
-------- -------- -------- --------
38,190 41,795 34,858 51,061
======== ======== ======== ========
Net income...................................... 17,131 21,452 16,004 25,367
Per share
Net income.................................... .76 .95 .70 1.11
Dividends..................................... .05 .05 .05 .05
Stock price
High....................................... 24 7/8 27 5/8 31 1/8 34 5/8
Low........................................ 17 13/16 23 1/4 25 1/8 30 1/4
</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.
MERGER PROPOSAL
On May 22, 1997, the Company made an offer to merge with Chaparral Steel
Company. Of the approximately 28.4 million shares of Chaparral outstanding at
May 31, 1997, the Company owns 24.0 million shares with the balance of the
outstanding shares publicly traded on the New York Stock Exchange. Under the
terms of the offer, owners of the publicly traded shares of Chaparral would
receive consideration of $14.25 per share.
F-13
<PAGE> 86
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1998 1997
------------ --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS
Cash...................................................... $ 4,428 $ 19,834
Notes and accounts receivable............................. 152,079 122,783
Inventories............................................... 166,571 167,146
Prepaid expenses.......................................... 45,467 34,613
---------- --------
TOTAL CURRENT ASSETS.............................. 368,545 344,376
OTHER ASSETS
Real estate and other investments......................... 13,301 14,920
Goodwill and other intangibles............................ 155,081 63,297
Other..................................................... 33,110 26,553
---------- --------
201,492 104,770
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements................................ 133,298 118,248
Buildings................................................. 68,199 66,156
Machinery and equipment................................... 979,092 815,019
---------- --------
1,180,589 999,423
Less allowances for depreciation.......................... 633,258 600,646
---------- --------
547,331 398,777
---------- --------
$1,117,368 $847,923
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable.................................... $ 90,010 $ 51,021
Accrued interest, wages and other items................... 43,573 36,909
Current portion of long-term debt......................... 13,430 13,452
---------- --------
TOTAL CURRENT LIABILITIES......................... 147,013 101,382
LONG-TERM DEBT.............................................. 369,404 176,056
DEFERRED FEDERAL INCOME TAXES AND OTHER CREDITS............. 83,402 80,080
MINORITY INTEREST........................................... -- 37,594
SHAREHOLDERS' EQUITY
Common stock, $1 par value................................ 25,067 25,067
Additional paid-in capital................................ 255,149 255,149
Retained earnings......................................... 324,605 262,774
Cost of common shares in treasury......................... (87,272) (90,179)
---------- --------
517,549 452,811
---------- --------
$1,117,368 $847,923
========== ========
</TABLE>
See notes to consolidated financial statements.
F-14
<PAGE> 87
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE)
<S> <C> <C> <C> <C>
NET SALES.......................................... $281,421 $216,618 $861,168 $696,936
COSTS AND EXPENSES (INCOME)
Cost of products sold............................ 228,074 178,129 683,116 554,956
Selling, general and administrative.............. 23,752 17,431 67,798 56,006
Interest......................................... 6,205 4,852 14,418 14,165
Other income..................................... (5,059) (1,824) (10,603) (7,169)
-------- -------- -------- --------
252,972 198,588 754,729 617,958
-------- -------- -------- --------
INCOME BEFORE THE FOLLOWING ITEMS........ 28,449 18,030 106,439 78,978
Income taxes....................................... 9,201 6,330 35,252 26,767
-------- -------- -------- --------
19,248 11,700 71,187 52,211
Minority interest in Chaparral..................... (620) (1,574) (4,400) (4,298)
-------- -------- -------- --------
NET INCOME............................... $ 18,628 $ 10,126 $ 66,787 $ 47,913
======== ======== ======== ========
BASIC
Average shares................................... 21,135 21,418 21,066 22,012
Earnings per share............................... $ .88 $ .48 $ 3.18 $ 2.18
======== ======== ======== ========
DILUTED
Average shares................................... 21,912 21,786 21,717 22,457
Earnings per share............................... $ .85 $ .47 $ 3.08 $ 2.14
======== ======== ======== ========
Cash dividends..................................... $ .075 $ .075 $ .225 $ .175
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-15
<PAGE> 88
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FEBRUARY 28,
---------------------
1998 1997
--------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 66,787 $ 47,913
Loss on disposal of assets................................ 611 186
Non-cash items
Depreciation, depletion and amortization............... 45,001 40,979
Deferred taxes......................................... (1,538) (2,331)
Undistributed minority interest........................ 4,177 3,643
Other -- net........................................... 5,601 4,182
Changes in operating assets and liabilities
Notes and accounts receivable.......................... (12,537) 2,226
Inventories and prepaid expenses....................... 6,305 (27,075)
Accounts payable and accrued liabilities............... 28,126 (4,002)
Real estate and investments............................ 1,834 2,742
--------- --------
Net cash provided by operations................... 144,367 68,463
INVESTING ACTIVITIES
Purchase of Riverside Cement Company...................... (110,916) --
Chaparral merger.......................................... (71,970) --
Capital expenditures -- Virginia steel facility........... (47,881) --
Capital expenditures -- other............................. (113,568) (65,262)
Proceeds from disposal of assets.......................... 2,282 1,426
Other -- net.............................................. (4,300) (2,316)
--------- --------
Net cash used by investing........................ (346,353) (66,152)
FINANCING ACTIVITIES
Proceeds from long-term borrowing......................... 267,639 53,206
Debt retirements.......................................... (74,324) (28,726)
Purchase of treasury shares............................... (558) (41,572)
Purchase of Chaparral stock............................... -- (3,770)
Dividends paid............................................ (4,721) (3,794)
Other -- net.............................................. (1,456) (1,707)
--------- --------
Net cash provided (used) by financing............. 186,580 (26,363)
--------- --------
Decrease in cash............................................ (15,406) (24,052)
Cash at beginning of period................................. 19,834 28,055
--------- --------
Cash at end of period....................................... $ 4,428 $ 4,003
========= ========
</TABLE>
See notes to consolidated financial statements.
F-16
<PAGE> 89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Texas Industries, Inc. (the Company or TXI), through its subsidiaries, is a
producer of steel and cement, aggregate and concrete products for the
construction and manufacturing industries. Chaparral Steel Company (Chaparral)
produces beams, merchant and special bar quality rounds, reinforcing bars and
channels, primarily for markets in North America and, under certain market
conditions, Europe and Asia. Cement, aggregate and concrete operations supply
cement and aggregates, ready-mix, pipe, block and brick from facilities
concentrated primarily in Texas, Louisiana, and California with several products
marketed throughout the U.S.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended February 28,
1998, are not necessarily indicative of the results that may be expected for the
year ended May 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended May 31, 1997.
Estimates: The preparation of financial statements and accompanying notes
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported. Actual
results could differ from those estimates.
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and all subsidiaries. The minority interest
represents the separate public ownership of Chaparral 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.
Property, Plant and Equipment: Property, plant and equipment is recorded at
cost. Provisions for depreciation are computed generally using the straight-line
method. Provisions for depletion of mineral deposits are computed on the basis
of the estimated quantity of recoverable raw materials.
Cash Equivalents: For cash flow purposes, temporary investments which have
maturities of less than 90 days when purchased are considered cash equivalents.
Earnings Per Share: Effective February 28, 1998, the Company adopted
Statement of Financial Accounting Standards No. 128 "Earnings per Share" (SFAS
128). SFAS 128 prescribes new calculations for Basic and Diluted Earnings Per
Share (EPS) which replaces the former calculations for Primary and Fully 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 contingently issuable shares. Diluted
EPS also adjusts the outstanding shares for the dilutive effect of stock options
and awards.
F-17
<PAGE> 90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Basic and Diluted EPS are calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE)
<S> <C> <C> <C> <C>
Earnings:
Net income........................................ $18,628 $10,126 $66,787 $47,913
Contingent price amortization..................... 58 58 174 174
------- ------- ------- -------
$18,686 $10,184 $66,961 $48,087
======= ======= ======= =======
Shares:
Weighted average shares outstanding............... 21,034 21,337 20,969 21,923
Contingently issuable shares...................... 101 81 97 89
------- ------- ------- -------
21,135 21,418 21,066 22,012
Stock option and award dilution................... 777 368 651 445
------- ------- ------- -------
21,912 21,786 21,717 22,457
======= ======= ======= =======
Basic earnings per share............................ $ .88 $ .48 $ 3.18 $ 2.18
======= ======= ======= =======
Diluted earnings per share.......................... $ .85 $ .47 $ 3.08 $ 2.14
======= ======= ======= =======
</TABLE>
Intangible Assets: Goodwill and other intangibles is presented net of
accumulated amortization of $20.8 million at February 28, 1998 and $17.9 million
at May 31, 1997. Goodwill resulting from the acquisitions of Chaparral Steel
Company and Riverside Cement Company, totalling $148.8 million at February 28,
1998 and $57.2 million at May 31, 1997 (net of accumulated amortization) are
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: Accounting for income taxes uses the liability method of
recognizing and classifying deferred income taxes. The Company joins in filing a
consolidated return with its subsidiaries. Current and deferred tax expense is
allocated among the members of the group based on a stand-alone calculation of
the tax of the individual member.
WORKING CAPITAL
Working capital totaled $221.5 million at February 28, 1998, compared to
$243.0 million at May 31, 1997.
Notes and accounts receivable of $152.1 million at February, compared with
$122.8 million at May, are presented net of allowances for doubtful receivables
of $7.2 million at February and $2.5 million at May.
Inventories are stated at cost (not in excess of market) generally using
the last-in, first-out method (LIFO). If the average cost method (which
approximates current replacement cost) had been used, inventory values would
have been higher by $12.7 million at February and $11.7 million at May.
F-18
<PAGE> 91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Inventories are summarized as follows:
<TABLE>
<CAPTION>
FEBRUARY MAY
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Finished products........................................... $ 61,739 $ 77,021
Work in process............................................. 35,739 27,162
Raw materials and supplies.................................. 69,093 62,963
-------- --------
$166,571 $167,146
======== ========
</TABLE>
LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
FEBRUARY MAY
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Bank obligations, maturing through 2002, interest rate 6.03%
(.4% over LIBOR).......................................... $ 38,000 $ 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%..................................................... 56,000 --
Senior notes due through 1999, interest rate 14.2%.......... 4,091 --
Pollution control bonds, due through 2007, interest rate
6.38% (75% of prime)...................................... 7,595 7,935
Replaced Chaparral debt..................................... -- 64,182
Other, maturing through 2005, interest rates from 8% to
10%....................................................... 2,148 2,391
-------- --------
382,834 189,508
Less current maturities..................................... 13,430 13,452
-------- --------
$369,404 $176,056
======== ========
</TABLE>
Annual maturities of long-term debt for each of the five succeeding years
are $13.4, $9.1, $8.9, $8.9 and $46.7 million.
The Company has available a bank-financed $350 million long-term revolving
credit facility. In addition to the $38.0 million currently outstanding under
this facility, $9.4 million has been utilized to support letters of credit.
Commitment fees at a current annual rate of .125% 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 the same loan covenants 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 for the nine-month periods presented was $12.3
million in 1998 and $12.2 million in 1997. Interest capitalized totaled $2.1
million in the 1998 period.
F-19
<PAGE> 92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
SHAREHOLDERS' EQUITY
Common stock consists of:
<TABLE>
<CAPTION>
FEBRUARY MAY
-------- ------
(IN THOUSANDS)
<S> <C> <C>
Shares authorized........................................... 40,000 40,000
Shares outstanding at end of period......................... 21,088 20,896
Weighted average shares outstanding assuming dilution....... 21,717 22,163
Shares held in treasury..................................... 3,979 4,171
Shares reserved for stock options and other................. 3,979 2,163
</TABLE>
There are authorized 100,000 shares of Cumulative Preferred Stock, no par
value, of which 20,000 shares are designated $5 Cumulative Preferred Stock
(Voting), redeemable at $105 per share and entitled to $100 per share upon
dissolution. On March 29, 1996, the Company redeemed and retired all outstanding
shares of such $5 Cumulative Preferred Stock. An additional 25,000 shares are
designated Series B Junior Participating Preferred Stock. The Series B Preferred
Stock is not redeemable and ranks, with respect to the payment of dividends and
the distribution of assets, junior to (i) all other series of the Preferred
Stock unless the terms of any other series shall provide otherwise and (ii) the
$5 Cumulative Preferred Stock. Pursuant to a Rights Agreement, in November 1996,
the Company distributed a dividend of one preferred share purchase right for
each outstanding share of the Company's Common Stock. Each right entitles the
holder to purchase from the Company one two-thousandth of a share of the Series
B Junior Participating Preferred Stock at a price of $122.50 per one
two-thousandth share of Series B Preferred Stock, subject to adjustment. The
rights will expire on November 1, 2006 unless the date is extended or the rights
are earlier redeemed or exchanged by the Company pursuant to the Rights
Agreement.
STOCK OPTION PLANS
The Company's stock option plans provide that non-qualified and incentive
stock options to purchase Common Stock may be granted to directors, officers and
key employees at market prices at date of grant. Generally, options become
exercisable in installments beginning one or two years after date of grant and
expire six or ten years later depending on the initial date of grant. A summary
of option transactions for the nine-month period ended February 28, 1998,
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES UNDER OPTION OPTION PRICE
------------------- ----------------
<S> <C> <C>
Outstanding at June 1............................ 1,797,131 $21.62
Granted........................................ 365,550 46.27
Exercised...................................... (195,454) 15.15
Canceled....................................... (44,040) 21.35
--------------- -----------
Outstanding at February 28....................... 1,923,187 $26.97
=============== ===========
</TABLE>
At February 28, 1998, there were 536,437 shares exercisable and 1,918,530
shares available for future grants. Outstanding options expire on various dates
to January 14, 2008.
F-20
<PAGE> 93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
INCOME TAXES
Federal income taxes for the interim periods ended February 28, 1998 and
1997, have been included in the accompanying financial statements on the basis
of an estimated annual rate. The estimated annualized tax rate is 33.1% for 1998
compared with 33.9% for 1997. The primary reason that these respective tax rates
differ from the 35% statutory corporate rate is due to goodwill expense which is
not tax deductible, percentage depletion which is tax deductible and the net
state income tax expense. The Company made income tax payments of $37.2 million
and $30.8 million in the nine-month periods ended February 28, 1998 and 1997,
respectively.
LEGAL PROCEEDINGS AND CONTINGENT LIABILITIES
The Company is subject to federal, state and local environmental laws and
regulations concerning, among other matters, air emissions, furnace dust
disposal and wastewater discharge. The Company believes it is in substantial
compliance with applicable environmental laws and regulations. Notwithstanding
such compliance, if damage to persons or property or contamination of the
environment has been or is caused by the conduct of the Company's business or by
hazardous substances or wastes used in, generated or disposed of by the Company,
the Company may be held liable for such damages and be required to pay the cost
of investigation and remediation of such contamination. The amount of such
liability could be material. Changes in federal or state laws, regulations or
requirements or discovery of unknown conditions could require additional
expenditures by the Company.
The Company and subsidiaries are defendants in lawsuits which arose in the
normal course of business. In management's judgment (based on the opinion of
counsel) the ultimate liability, if any, from such legal proceedings will not
have a material effect on the consolidated financial position of the Company.
ACQUISITIONS
On December 31, 1997, the Company acquired the 15.7% separate public
ownership of Chaparral Steel Company. Pursuant to the merger agreement, the
owners of the approximately 4.5 million publicly traded shares received cash
consideration of $15.50 per share. As of February 28, 1998, $72.0 million of the
estimated $77.1 million total acquisition cost including transaction expenses
had been paid. The excess of the acquisition costs over the fair value of the
net assets acquired, approximately $34.9 million, was recorded as goodwill and
is being amortized over a 40-year period.
Effective December 31, 1997, the Company acquired Riverside Cement Company
for an estimated $115.4 million in cash and the assumption of certain
liabilities. An initial cash payment of $110.9 million was made on January 15,
1998 with the balance payable within 60 days. 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.
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 purchased manufacturing facilities are planned to be
upgraded and expanded with modern technology within existing permit limitations
and limestone reserves. The purchase is expected to increase the Company's
cement capacity by 60%.
F-21
<PAGE> 94
No dealer, salesperson or other individual has been authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the offering. If given or made, such information or
representation must not be relied upon as having been authorized by the Trust or
any of the Underwriters. This Prospectus does not constitute an offer to sell,
or a solicitation of an offer to buy, the Preferred Securities in any
jurisdiction where, or to any person to whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
not been any change in the facts set forth in this Prospectus or in the affairs
of the Company or the Trust since the date hereof.
TABLE OF CONTENTS
- ------------------------------------------------------
<TABLE>
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 11
Ratio of Earnings to Fixed Charges.... 18
Accounting Treatment.................. 18
Use of Proceeds....................... 18
Price Range of Common Stock and
Dividends........................... 19
Capitalization........................ 20
Selected Consolidated Financial
Data................................ 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 28
Description of the Preferred
Securities.......................... 33
Description of the Preferred
Securities Guarantee................ 44
Description of the Convertible
Subordinated Debentures............. 47
Effect of Obligations Under the
Convertible Subordinated Debentures
and the Preferred Securities
Guarantee........................... 58
Certain Federal Income Tax
Consequences........................ 59
Certain ERISA Considerations.......... 64
Underwriting.......................... 66
Legal Matters......................... 67
Experts............................... 67
Additional Information................ 68
Incorporation of Certain Documents by
Reference........................... 68
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
PROSPECTUS June 2, 1998
TXI Logo
4,000,000
PREFERRED SECURITIES OF
TXI CAPITAL TRUST I
5.5% Shared Preference
Redeemable Securities ("SPuRS(SM)")
(Liquidation Preference $50 per Preferred Security)
fully and unconditionally
guaranteed by and convertible
into the common stock of
TEXAS INDUSTRIES, INC.
SBC WARBURG DILLON READ INC.
MERRILL LYNCH & CO.
