<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 1-4887
TEXAS INDUSTRIES, INC.
(Exact name of registrant as specified in the charter)
Delaware 75-0832210
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1341 West Mockingbird Lane, Suite 700W, Dallas, Texas 75247-6913
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 647-6700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of January 5, 1998, 20,997,939 shares of Registrant's Common Stock, $1.00 par
value, were outstanding.
Page 1 of 19
<PAGE>
INDEX
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
- -----------------------------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - November 30, 1997 and May 31, 1997.......................... 3
Consolidated Statements of Income -- three months and six months ended
November 30, 1997 and November 30, 1996................................................ 4
Consolidated Statements of Cash Flows -- six months ended November 30, 1997
and November 30, 1996.................................................................. 5
Notes to Consolidated Financial Statements................................................ 6
Independent Accountants' Review Report.................................................... 11
Item 2. Management's Discussion and Analysis of Operating Results
and Financial Condition................................................................ 12
PART II. OTHER INFORMATION
- -----------------------------
Item 4. Submission of Matters to a Vote of Security Holders....................................... 15
Item 6. Exhibits and Reports on Form 8-K.......................................................... 15
SIGNATURES
- ----------
</TABLE>
-2-
<PAGE>
CONSOLIDATED BALANCE SHEETS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
November 30, May 31,
- ----------------------------------------------------------------------------
In thousands 1997 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 23,279 $ 19,834
Notes and accounts receivable 128,370 122,783
Inventories 149,798 167,146
Prepaid expenses 40,544 34,613
---------- ---------
TOTAL CURRENT ASSETS 341,991 344,376
OTHER ASSETS
Real estate and other investments 13,718 14,920
Goodwill and other intangibles 62,619 63,297
Other 28,626 26,553
---------- ---------
104,963 104,770
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 120,248 118,248
Buildings 66,311 66,156
Machinery and equipment 886,559 815,019
---------- ---------
1,073,118 999,423
Less allowances for depreciation 619,743 600,646
---------- ---------
453,375 398,777
---------- ---------
$ 900,329 $ 847,923
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 64,294 $ 51,021
Accrued interest, wages and other items 43,567 36,909
Current portion of long-term debt 13,456 13,452
---------- ---------
TOTAL CURRENT LIABILITIES 121,317 101,382
LONG-TERM DEBT 156,603 176,056
DEFERRED FEDERAL INCOME TAXES AND OTHER CREDITS 81,761 80,080
MINORITY INTEREST 41,693 37,594
SHAREHOLDERS' EQUITY
Common stock, $1 par value 25,067 25,067
Additional paid-in capital 255,149 255,149
Retained earnings 307,663 262,774
Cost of common shares in treasury (88,924) (90,179)
---------- ---------
498,955 452,811
---------- ---------
$ 900,329 $ 847,923
========== =========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
(Unaudited)
CONSOLIDATED STATEMENTS OF INCOME
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended Six months ended
November 30, November 30,
- ---------------------------------------------------------------------------------------
In thousands except per share 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $282,687 $234,376 $579,747 $480,318
COSTS AND EXPENSES (INCOME)
Cost of products sold 222,568 184,136 455,042 376,827
Selling, general and administrative 21,089 20,044 44,046 38,575
Interest 3,840 4,615 8,213 9,313
Other income (3,577) (3,247) (5,544) (5,345)
-------- -------- -------- --------
243,920 205,548 501,757 419,370
-------- -------- -------- --------
INCOME BEFORE THE FOLLOWING ITEMS 38,767 28,828 77,990 60,948
Income taxes 13,076 9,610 26,051 20,437
-------- -------- -------- --------
25,691 19,218 51,939 40,511
Minority interest in Chaparral (2,242) (1,315) (3,780) (2,724)
-------- -------- -------- --------
NET INCOME $ 23,449 $ 17,903 $ 48,159 $37,787
======== ======== ======== ========
Average common shares 21,864 22,792 21,647 22,879
Net income per common share $ 1.07 $ .79 $ 2.23 $ 1.66
======== ======== ======== ========
Cash dividends $ .075 $ .05 $ .15 $ .10
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Six months ended
November 30,
- ----------------------------------------------------------------------------
In thousands 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 48,159 $ 37,787
Loss on disposal of assets 481 26
Non-cash items
Depreciation, depletion and amortization 28,683 27,109
Deferred taxes (1,256) (1,717)
Undistributed minority interest 3,557 2,288
Other - net 4,156 2,526
Changes in operating assets and liabilities
Notes and accounts receivable (4,043) (1,444)
Inventories and prepaid expenses 11,554 (23,045)
Accounts payable and accrued liabilities 20,327 (386)
Real estate and investments 1,342 2,528
-------- --------
Net cash provided by operations 112,960 45,672
INVESTING ACTIVITIES
Capital expenditures (84,710) (47,741)
Proceeds from disposition of assets 1,627 1,400
Other - net (3,241) (3,998)
-------- --------
Net cash used by investing (86,324) (50,339)
FINANCING ACTIVITIES
Proceeds of long-term borrowing 19,639 28,206
Debt retirements (39,099) (11,900)
Purchase of treasury shares (317) (15,057)
Purchase of Chaparral stock -- (3,770)
Dividends paid (3,142) (2,228)
Other - net (272) (1,924)
-------- --------
Net cash used by financing (23,191) (6,673)
-------- --------
Increase (decrease) in cash 3,445 (11,340)
Cash at beginning of period 19,834 28,055
-------- --------
Cash at end of period $ 23,279 $ 16,715
======== ========
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Texas Industries, Inc. (the Company or TXI), through its subsidiaries, is a
producer of steel and cement, aggregate and concrete products for the
construction and manufacturing industries. Chaparral Steel Company (Chaparral)
produces beams, merchant and special bar quality rounds, reinforcing bars and
channels, primarily for markets in North America and, under certain market
conditions, Europe and Asia. Cement, aggregate and concrete operations supply
cement and aggregates, ready-mix, pipe, block and brick from facilities
concentrated primarily in Texas and Louisiana, with several products marketed
throughout the U.S.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended November 30,
1997, are not necessarily indicative of the results that may be expected for the
year ended May 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended May 31, 1997.
ESTIMATES: The preparation of financial statements and accompanying notes in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported. Actual results
could differ from those estimates.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and all subsidiaries. The minority interest represents
the separate public ownership of Chaparral, 15.7% at November 30, 1997 and 15.5%
at May 31, 1997. Certain amounts in the prior period financial statements have
been reclassified to conform to the current period presentation.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is recorded at
cost. Provisions for depreciation are computed generally using the straight-
line method. Provisions for depletion of mineral deposits are computed on the
basis of the estimated quantity of recoverable raw materials.
CASH EQUIVALENTS: For cash flow purposes, temporary investments which have
maturities of less than 90 days when purchased are considered cash equivalents.
EARNINGS PER SHARE: Earnings per share are computed by adjusting net income for
amortization of additional goodwill in connection with a 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 $.05 and $.07 for the
three-month and six-month periods ended November 30, 1997, respectively and $.02
and $.04 for the three-month and six-month periods ended November 30, 1996,
respectively.
INTANGIBLE ASSETS: Goodwill and other intangibles is presented net of
accumulated amortization of $19.6 million at November 30, 1997 and $17.9 million
at May 31, 1997. Goodwill resulting from the acquisition of Chaparral of $56.2
million at November 30, 1997 and $57.2 million at May 31, 1997 (net of
accumulated amortization) is being amortized currently on a straight-line basis
over a 40-year period. Other intangibles consisting primarily of goodwill and
non-compete agreements are being amortized on a straight-line basis over periods
of 2 to 15 years. Management reviews remaining goodwill and other intangibles
with consideration toward recovery through future operating results
(undiscounted) at the current rates of amortization.
-6-
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued
COMMISSIONING COSTS: The Company's policy for new facilities is to capitalize
certain costs until the facility is substantially complete and ready for its
intended use. Chaparral substantially completed its large beam mill during the
third quarter of fiscal 1992. Deferred costs totaling $15.1 million were
amortized over a five-year period. The amount of amortization charged to income
was $1.5 million in the six-month period ended November 30, 1996.
INCOME TAXES: Accounting for income taxes uses the liability method of
recognizing and classifying deferred income taxes. The Company joins in filing
a consolidated return with its subsidiaries. Current and deferred tax expense
is allocated among the members of the group based on a stand-alone calculation
of the tax of the individual member.
WORKING CAPITAL
Working capital totaled $220.7 million at November 30, 1997, compared to $243.0
million at May 31, 1997.
Notes and accounts receivable of $128.4 million at November, compared with
$122.8 million at May, are presented net of allowances for doubtful receivables
of $3.1 million at November 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 $12.1 million at November and $11.7 million at May.
Inventories are summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In thousands November May
- --------------------------------------------------------------------------------
<S> <C> <C>
Finished products $ 56,039 $ 77,021
Work in process 25,289 27,162
Raw materials and supplies 68,470 62,963
-------- --------
$149,798 $167,146
======== ========
</TABLE>
LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In thousands November May
- --------------------------------------------------------------------------------
<S> <C> <C>
Bank obligations, maturing through 2001, interest rates
from 6.31% to 6.38% (.625% over LIBOR) $ 21,000 $ 40,000
Senior notes due through 2008, interest rates
average 7.28% 75,000 75,000
Senior notes of Chaparral, due through 2004,
interest rates average 10.2% 56,000 56,000
First mortgage notes of Chaparral, due through 1999,
interest rate 14.2% 8,182 8,182
Pollution control bonds, due through 2007, interest rate
6.38% (75% of prime) 7,595 7,935
Other, maturing through 2005, interest rates
from 8% to 10% 2,282 2,391
-------- --------
170,059 189,508
Less current maturities 13,456 13,452
-------- --------
$156,603 $176,056
======== ========
</TABLE>
Annual maturities of long-term debt for each of the five succeeding years are
$13.5, $13.2, $9.0, $29.9 and $8.7 million.
-7-
<PAGE>
LONG-TERM DEBT-Continued
The Company has available a bank-financed $100 million long-term line of credit.
In addition to the $21.0 million currently outstanding under this line, $8.9
million has been utilized to support letters of credit. Commitment fees at a
current annual rate of .22% are paid on the unused portion of this line. In
addition, Chaparral has available a bank-financed $10 million short-term line of
credit which will expire December 31, 1997. 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 $62.7 million as of November 30, 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 $215.9 million at November 30, 1997 is mortgaged as collateral
for $9.4 million of secured debt.
The amount of interest paid for the six-month periods presented was $10.1
million in 1997 and $10.5 million in 1996. Interest capitalized totalled $1.0
million in the 1997 period.
SHAREHOLDERS' EQUITY
Common stock consists of:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
In thousands November May
- --------------------------------------------------------------------
<S> <C> <C>
Shares authorized 40,000 40,000
Shares outstanding at end of period 20,986 20,896
Average shares outstanding including equivalents 21,647 22,243
Shares held in treasury 4,081 4,171
Shares reserved for stock options and other 4,079 2,163
</TABLE>
There are authorized 100,000 shares of Cumulative Preferred Stock, no par value,
of which 20,000 shares are designated $5 Cumulative Preferred Stock (Voting),
redeemable at $105 per share and entitled to $100 per share upon dissolution.
On March 29, 1996, the Company redeemed and retired all outstanding shares of
such $5 Cumulative Preferred Stock. An additional 25,000 shares are designated
Series B Junior Participating Preferred Stock. The Series B Preferred Stock is
not redeemable and ranks, with respect to the payment of dividends and the
distribution of assets, junior to (i) all other series of the Preferred Stock
unless the terms of any other series shall provide otherwise and (ii) the $5
Cumulative Preferred Stock. Pursuant to a Rights Agreement, in November 1996,
the Company distributed a dividend of one preferred share purchase right for
each outstanding share of the Company's Common Stock. Each right entitles the
holder to purchase from the Company one two-thousandth of a share of the Series
B Junior Participating Preferred Stock at a price of $122.50 per one two-
thousandth share of Series B Preferred Stock, subject to adjustment. The rights
will expire on November 1, 2006 unless the date is extended or the rights are
earlier redeemed or exchanged by the Company pursuant to the Rights Agreement.
-8-
<PAGE>
STOCK OPTION PLANS
The Company's stock option plans provide that non-qualified and incentive stock
options to purchase Common Stock may be granted to directors, officers and key
employees at market prices at date of grant. Generally, options become
exercisable in installments beginning one or two years after date of grant and
expire six or ten years later depending on the initial date of grant. A summary
of option transactions for the six-month period ended November 30, 1997,
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Weighted Average
Shares Under Option Option Price
- ------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 1 1,797,131 $21.62
Granted 20,000 45.00
Exercised (94,678) 14.61
Cancelled (7,700) 19.81
--------- ------
Outstanding at November 30 1,714,753 $22.28
========= ======
</TABLE>
At November 30, 1997, there were 466,793 shares exercisable and 2,227,740 shares
available for future grants. Outstanding options expire on various dates to
October 21, 2007.
INCOME TAXES
Federal income taxes for the interim periods ended November 30, 1997 and 1996,
have been included in the accompanying financial statements on the basis of an
estimated annual rate. The estimated annualized tax rate is 33.4% for 1997
compared with 33.5% for 1996. The primary reason that these respective tax
rates differ from the 35% statutory corporate rate is due to goodwill expense
which is not tax deductible, percentage depletion which is tax deductible and
the net state income tax expense. The Company made income tax payments of $20.7
million and $18.6 million in the six-month periods ended November 30, 1997 and
1996, respectively.
LEGAL PROCEEDINGS AND CONTINGENT LIABILITIES
The Company is subject to federal, state and local environmental laws and
regulations concerning, among other matters, air emissions, furnace dust
disposal and wastewater discharge. The Company believes it is in substantial
compliance with applicable environmental laws and regulations. Notwithstanding
such compliance, if damage to persons or property or contamination of the
environment has been or is caused by the conduct of the Company's business or by
hazardous substances or wastes used in, generated or disposed of by the Company,
the Company may be held liable for such damages and be required to pay the cost
of investigation and remediation of such contamination. The amount of such
liability could be material. Changes in federal or state laws, regulations or
requirements or discovery of unknown conditions could require additional
expenditures by the Company.
The Company and subsidiaries are defendants in lawsuits which arose in the
normal course of business. In management's judgment (based on the opinion of
counsel) the ultimate liability, if any, from such legal proceedings will not
have a material effect on the consolidated financial position of the Company.
SUBSEQUENT EVENTS
On December 31, 1997, the Company completed its merger with Chaparral Steel
Company. Pursuant to the merger agreement, the owners of the approximately 4.5
million publicly traded shares of Chaparral will receive cash consideration of
$15.50 per share. The merger is estimated to provide additional recorded
goodwill of approximately $32 million which will be amortized over the 28
remaining years of the 40-year period determined at the time of the original
purchase of Chaparral.
-9-
<PAGE>
SUBSEQUENT EVENTS-Continued
The Company has entered into a purchase agreement with an effective date of
December 31, 1997 to acquire Riverside Cement Company for approximately $120
million in cash and the assumption of certain liabilities. Subject to the
satisfaction of certain conditions, the purchase is scheduled to close on
January 15, 1998. The purchase price will be allocated to the assets acquired,
including any goodwill, and liabilities assumed based upon their estimated fair
values to be determined when final appraisals, other studies and additional
information become available. Any excess of the purchase price over the net
assets acquired will be amortized over its recoverable life. 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
purchase is expected to increase the Company's cement capacity by 60%.
On December 18, 1997, the Company concluded the placement of $200 million in
fixed-rate senior notes having an average maturity of twelve years and average
interest rate of 7.28%. The Company also replaced, under similar terms and
conditions, its $100 million long-term line of credit with a $350 million credit
facility which will expire in December 2002. In addition, on December 31, 1997,
Chaparral's senior and first mortgage notes, which had restricted dividends and
advances to its shareholders including the parent company, were replaced with
senior notes of the Company having the same interest rates and maturities as the
Chaparral notes and the same loan covenants as the Company's other senior notes.
-10-
<PAGE>
EXHIBIT A
---------
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors
Texas Industries, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of Texas
Industries, Inc. and subsidiaries as of November 30, 1997, and the related
condensed consolidated statements of income for the three-month and six-month
periods ended November 30, 1997 and 1996, and the condensed consolidated
statements of cash flows for the six-month periods ended November 30, 1997 and
1996. These financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Texas Industries, Inc. and
subsidiaries as of May 31, 1997, and the related consolidated statements of
income, shareholders' equity, and cash flows for the year then ended [not
presented herein] and in our report dated July 8, 1997, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of May 31, 1997, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
----------------------
December 15, 1997
-11-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of operations and financial condition for the three-month and six-
month periods ended November 30, 1997 to the three-month and six-month periods
ended November 30, 1996.
RESULTS OF OPERATIONS
Consolidated net sales of $282.7 million for the quarter ended November 30, 1997
increased 21% from the prior year period. Steel sales were $175.4 million, up
$31.8 million. Shipments increased 66,000 tons. Average selling prices
increased $12 per ton. Net sales for the current six month period at $354.4
million were 21% higher than 1996 levels on a 19% increase in shipments and a $4
per ton increase in average selling prices. Continued strength in the
construction industries has sustained demand for structural products.
Structural mill pricing, 2% higher than the prior year quarter was 4% higher
than the August 1997 quarter reflecting the impact of price increases announced
during the spring and summer. Realized prices for bar mill products increased
5% over the prior year quarter as a result of improved product mix and higher
rebar and SBQ prices offsetting lower shipments. Cement, aggregate and concrete
sales for the quarter were $107.3 million, 18% higher than the prior year
period. Cement average pricing increased 2% and shipments increased by 60,000
tons. Shipments during the current six-month period were 15% higher than those
of the prior year. Ready-mix pricing increased 2% with volumes 16% above those
of the prior year quarter. Overall aggregate prices increased 4% with volumes
4% higher than the prior year quarter. The Company benefited from the return to
more normal weather conditions in Texas and Louisiana as construction activity
continues to be strong, providing a favorable balance between supply and demand
for the Company's products.
BUSINESS SEGMENTS
<TABLE>
<CAPTION>
Three months ended
November 30,
- -----------------------------------------------------------------
In thousands 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
NET SALES
Bar mill $ 40,880 $ 40,781
Structural mills 132,195 101,765
Transportation and other 2,343 1,091
-------- --------
TOTAL STEEL 175,418 143,637
Cement 38,833 34,150
Ready-mix 47,246 40,276
Stone, sand & gravel 20,709 19,125
Other products 23,082 19,002
Interplant (22,601) (21,814)
-------- --------
TOTAL CEMENT, AGGREGATE AND CONCRETE 107,269 90,739
-------- --------
TOTAL NET SALES $282,687 $234,376
======== ========
UNITS SHIPPED
Bar mill (tons) 113 119
Structural mills (tons) 328 256
-------- --------
TOTAL STEEL TONS 441 375
Cement (tons) 594 534
Ready-mix (cubic yards) 881 759
Stone, sand & gravel (tons) 4,136 3,993
</TABLE>
-12-
<PAGE>
BUSINESS SEGMENTS-Continued
<TABLE>
<CAPTION>
Three months ended
November 30,
- ---------------------------------------------------------------------------
In thousands 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
STEEL OPERATIONS
Gross profit $ 36,939 $ 30,140
Less: Depreciation & amortization 8,303 8,879
Selling, general & administrative 8,203 7,259
Other income (2,262) (752)
-------- --------
OPERATING PROFIT 22,695 14,754
CEMENT, AGGREGATE AND CONCRETE OPERATIONS
Gross profit 36,796 33,334
Less: Depreciation, depletion &
amortization 5,832 4,584
Selling, general & administrative 6,098 6,962
Other income (432) (769)
-------- --------
OPERATING PROFIT 25,298 22,557
-------- --------
TOTAL OPERATING PROFIT 47,993 37,311
CORPORATE RESOURCES
Other income 883 1,726
Less: Depreciation & amortization 209 202
Selling, general & administrative 6,060 5,392
-------- --------
(5,386) (3,868)
INTEREST EXPENSE (3,840) (4,615)
-------- --------
INCOME BEFORE TAXES & OTHER ITEMS $ 38,767 $ 28,828
======== ========
</TABLE>
Consolidated cost of products sold including depreciation, depletion and
amortization was $222.6 million, an increase of $38.5 million from the prior
year quarter. Steel costs of $146.8 million were up $24.5 million as a result
of increased shipments and higher melting conversion costs which increased
average unit costs. Cement, aggregate and concrete costs were $75.8 million, an
increase of $14 million over the prior year quarter as a result of increased
volumes and higher per unit cement manufacturing costs and ready-mix
distribution costs.
Operating profit of $48.0 million in the current quarter was 29% higher than
the prior year period. Steel profits at $22.7 million were $7.9 million higher
due primarily to increased structural shipments at higher average selling
prices. Cement, aggregate and concrete profits were up 12% over the prior year
as increased volumes were offset somewhat by higher unit costs.
Selling, general and administrative expenses including depreciation and
amortization at $21.1 million increased $1.0 million over the prior year
quarter. Steel SG&A expense increased $.9 million to $8.2 million primarily due
to increased employee incentive accruals as a result of increased profits.
Cement, aggregate and concrete SG&A expense at $6.6 million was $.6 million
lower than the prior year period. Corporate resources SG&A expense increased
$.7 million to $6.3 million due in part to general expenses not allocated to
operations. Interest expense in 1997, including $1.0 million which was
capitalized, was comparable to 1996 expense. Income tax expense was provided at
a .1% lower estimated annualized tax rate in 1997.
-13-
<PAGE>
CASH FLOWS
Net cash provided by operations in 1997, at $113.0 million, increased $67.3
million over 1996 due to higher net income and changes in working capital items.
Receivables increased $4 million in 1997 on increased sales. Inventories
declined $17.3 million in 1997 as increased shipments reduced inventories in
both steel and cement, aggregate and concrete operations. In 1996, inventories
had grown $18.2 million due to Chaparral's record melt shop production and
reduced shipments in both operations. These inventory changes increased
operating cash flow $35.5 million in 1997 over 1996. Accounts payable and
accrued expenses increased $20.3 million in 1997 compared to a decrease of $.4
million in 1996 due in part to increased tax accruals. Property sales in 1997
remained at 1996 levels with investment cash flows below that of the prior year.
Investing activities used $86.3 million compared to $50.3 million in 1996.
Capital expenditures at $84.7 million, increased $37.0 million over the prior
year. Capital budget plans for 1998 are estimated to reach $120 million as the
Company continues to expand and upgrade its current operations. Chaparral's
planned new structural mill will be constructed on a 600 acre site, 30 miles
south of Richmond, Virginia, with production scheduled to begin in 1999.
Expenditures of $50 million are anticipated in fiscal 1998 with an estimated
total capital commitment of $400 million over the next five years.
Financing activities used $23.2 million compared to $6.7 million in 1996. Debt
retirements, net of borrowings, were $3.2 million higher in 1997 as the Company
reduced its borrowings under its long-term bank line of credit. In 1996, the
Company purchased $15.1 million of its Common Stock pursuant to a decision
announced in October 1996 authorizing the repurchase of shares for general
corporate purposes. During the same period, Chaparral purchased $3.8 million
shares of its common stock. The Company's quarterly cash dividend at $.075 per
common share was 50% higher than the per share rate in 1996 on 6% fewer
outstanding shares.
FINANCIAL CONDITION
The Company has entered into a purchase agreement with an effective date of
December 31, 1997 to acquire Riverside Cement Company for approximately $120
million in cash and the assumption of certain liabilities. Subject to the
satisfaction of certain conditions, the purchase is scheduled to close on
January 15, 1998. The purchase price will be allocated to the assets acquired,
including any goodwill, and liabilities assumed based upon their estimated fair
values to be determined when final appraisals, other studies and additional
information become available. Any excess of the purchase price over the net
assets acquired will be amortized over its recoverable life. 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
purchase is expected to increase the Company's cement capacity by 60%. On
December 31, 1997, the Company completed its merger with Chaparral Steel
Company. Owners of approximately 4.5 million publicly traded shares of Chaparral
will receive cash consideration of $15.50 per share. Funding of these
investments will be provided by new long-term debt. The merger is estimated to
provide additional recorded goodwill of approximately $32 million which will be
amortized over the 28 remaining years of the 40-year period determined at the
time of the original purchase of Chaparral.
On December 18, 1997, the Company concluded the placement of $200 million in
fixed-rate senior notes having an average maturity of twelve years and average
interest rate of 7.28%. The Company also replaced, under similar terms and
conditions, its $100 million long-term line of credit with a $350 million credit
facility which will expire in December 2002. At November 30, 1997, $21.0
million was outstanding and an additional $8.9 million utilized to support
letters of credit under its credit line. In addition, on December 31, 1997,
Chaparral's senior and first mortgage notes, which had restricted dividends and
advances to its shareholders including the parent company, were replaced with
senior notes of the Company having the same interest rates and maturities as the
Chaparral notes and the same loan covenants as the Company's other senior notes.
The Company generally maintains a policy of financing major capital expansion
projects with long-term borrowing. Working capital, investments and replacement
assets are typically funded out of cash flow from operations. The Company
expects current financial resources and cash from 1998 operations to be
sufficient to provide funds for planned capital expenditures, scheduled debt
repayments and other known working capital needs. If additional funds are
required to accomplish long-term expansion of operations, management believes
that funding can be obtained through lending or equity sources to meet such
requirements.
-14-
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of the Shareholders held October 21, 1997, shareholders
voted on the following matters:
1. To elect as Directors of the Company, Gordon E. Forward and James M.
Hoak, Jr. to terms expiring in 2000. Votes cast to elect Gordon E.
Forward were 17,747,056 affirmative, 818,357 opposed and 2,369,562
abstained or non-voted. Votes cast to elect James M. Hoak, Jr. were
17,751,262 affirmative, 814,151 opposed and 2,369,562 abstained or non-
voted. Terms of office expire for the continuing directors, Robert D.
Rogers, Ian Wachtmeister, and Gerald R. Heffernan in 1998 and for the
continuing directors Robert Alpert, Richard I. Galland, and Elizabeth
C. Williams in 1999.
2. To authorize amending the Company's Certificate of Incorporation to
change the name of the corporation. Votes cast were 18,377,115
affirmative, 139,438 opposed and 2,418,422 abstained or non-voted.
3. To amend the Texas Industries, Inc. 1993 Stock Option Plan to increase
the number of shares of Common Stock which may be issued under the Plan
from 2,000,000 to 4,000,000 shares. Votes cast were 11,588,858
affirmative, 4,317,817 opposed and 5,028,300 abstained or non-voted.
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
(11) Statement re: Computation of earnings per share
(15) Letter re: Unaudited Interim Financial Information
(27) Financial Data Schedule
This schedule contains summary financial information extracted from the
Registrant's Unaudited November 30, 1997 Consolidated Financial Statements and
is qualified in its entirety by reference to such financial statements.
The Registrant filed the following report on Form 8-K during the three-month
period ended November 30, 1997:
September 9, 1997, reporting that the Registrant had reached
agreement to purchase Riverside Cement Company, a cement
manufacturing and distribution company located in California from
Ssangyong Cement Industrial Co., Ltd., Seoul, Korea.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
TEXAS INDUSTRIES, INC.
January 12, 1998 /s/ Richard M. Fowler
- ---------------- --------------------------------------------
Richard M. Fowler
Vice President & Chief Financial Officer
January 12, 1998 /s/ James R. McCraw
- ---------------- --------------------------------------------
James R. McCraw
Vice President - Accounting and Information
Services
-16-
<PAGE>
INDEX TO EXHIBITS
Exhibits Page
11. Statement re: Computation of per share earnings........... 18
15. Letter re: Unaudited Interim Financial Information........ 19
27. Financial Data Schedule.................................... **
** Electronically filed only.
-17-
<PAGE>
EXHIBIT 11
(Unaudited)
COMPUTATION OF EARNINGS PER SHARE
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended Six months ended
November 30, November 30,
- ------------------------------------------------------------------------------------------------
In thousands except per share 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING
Primary
Average shares outstanding 20,962 22,174 20,936 22,216
Stock options and other equivalents -
treasury stock method using
average market prices 902 618 711 663
------- ------- ------- -------
TOTAL 21,864 22,792 21,647 22,879
======= ======= ======= =======
Fully diluted
Average common shares outstanding 20,962 22,174 20,936 22,216
Stock options and other equivalents -
treasury stock method using end of
quarter market price if higher than
average 1,002 618 860 663
------- ------- ------- -------
TOTAL 21,964 22,792 21,796 22,879
======= ======= ======= =======
NET INCOME APPLICABLE TO COMMON STOCK
Primary
Net income $23,449 $17,903 $48,159 $37,787
Adjustments
Contingent price amortization 58 58 116 116
------- ------- ------- -------
TOTAL $23,507 $17,961 $48,275 $37,903
======= ======= ======= =======
Fully diluted
Net income $23,449 $17,903 $48,159 $37,787
Adjustments
Contingent price amortization 58 58 116 116
------- ------- ------- -------
TOTAL $23,507 $17,961 $48,275 $37,903
======= ======= ======= =======
PER SHARE
Primary
Net income per common share
and common equivalent share $ 1.07 $ .79 $ 2.23 $ 1.66
======= ======= ======= =======
Fully diluted
Net income per common share and
dilutive common equivalent share $ 1.07 $ .79 $ 2.21 $ 1.66
======= ======= ======= =======
</TABLE>
-18-
<PAGE>
EXHIBIT 15
Board of Directors
Texas Industries, Inc.
We are aware of the incorporation by reference in the Registration Statement
Number 2-95879 on Form S-8, Post-Effective Amendment Number 9 to Registration
Statement Number 2-48986 on Form S-8, and Registration Statement Number 33-
53715 on Form S-8 of Texas Industries, Inc., and in the related Prospectuses of
our report dated December 15, 1997, relating to the unaudited condensed
consolidated interim financial statements of Texas Industries, Inc., which are
included in its Form 10-Q for the quarter ended November 30, 1997.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part
of the Registration Statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
/s/ Ernst & Young LLP
----------------------------------
January 12, 1998
Dallas, Texas
-19-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED NOVEMBER 30, 1997 CONSOLIDATED FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 23,279
<SECURITIES> 0
<RECEIVABLES> 131,496
<ALLOWANCES> 3,126
<INVENTORY> 149,798
<CURRENT-ASSETS> 341,991
<PP&E> 1,073,118
<DEPRECIATION> 619,743
<TOTAL-ASSETS> 900,329
<CURRENT-LIABILITIES> 121,317
<BONDS> 156,603
25,067
0
<COMMON> 0
<OTHER-SE> 473,888
<TOTAL-LIABILITY-AND-EQUITY> 900,329
<SALES> 579,747
<TOTAL-REVENUES> 579,747
<CGS> 455,042
<TOTAL-COSTS> 455,042
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 926
<INTEREST-EXPENSE> 8,213
<INCOME-PRETAX> 77,990
<INCOME-TAX> 26,051
<INCOME-CONTINUING> 48,159
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,159
<EPS-PRIMARY> 2.23
<EPS-DILUTED> 2.21
</TABLE>
