<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 1-4887
TEXAS INDUSTRIES, INC.
(Exact name of registrant as specified in the charter)
Delaware 75-0832210
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1341 West Mockingbird Lane, Suite 700W, Dallas, Texas 75247-6913
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 647-6700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of January 5, 1999, 21,220,486 shares of Registrant's Common Stock, $1.00 par
value, were outstanding.
Page 1 of 28
<PAGE>
INDEX
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION Page
- -----------------------------
Item 1. Financial Statements
Consolidated Balance Sheets - November 30, 1998
and May 31, 1998.............................................. 3
Consolidated Statements of Income -- three months
and six months ended November 30, 1998 and November 30, 1997.. 4
Consolidated Statements of Cash Flows -- six months ended
November 30, 1998 and November 30, 1997....................... 5
Notes to Consolidated Financial Statements..................... 6
Independent Accountants' Review Report......................... 11
Item 2. Management's Discussion and Analysis of Operating Results
and Financial Condition....................................... 12
PART II. OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders............ 16
Item 6. Exhibits and Reports on Form 8-K............................... 16
SIGNATURES
- ----------
-2-
<PAGE>
CONSOLIDATED BALANCE SHEETS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
November 30, May 31,
- ---------------------------------------------------------------------------------------------
In thousands 1998 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 8,928 $ 16,718
Notes and accounts receivable 129,046 151,235
Inventories 218,772 162,010
Prepaid expenses 52,020 41,949
---------- ----------
TOTAL CURRENT ASSETS 408,766 371,912
OTHER ASSETS
Real estate and other investments 14,314 13,302
Goodwill and other intangibles 150,621 153,375
Other 38,539 30,735
---------- ----------
203,474 197,412
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 145,489 142,701
Buildings 72,359 69,900
Machinery and equipment 905,271 889,228
Construction in progress 371,902 160,758
---------- ----------
1,495,021 1,262,587
Less allowances for depreciation 678,659 646,080
---------- ----------
816,362 616,507
---------- ----------
$1,428,602 $1,185,831
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 76,114 $ 80,495
Accrued interest, wages and other items 56,055 51,067
Current portion of long-term debt 13,273 13,382
---------- ----------
TOTAL CURRENT LIABILITIES 145,442 144,944
LONG-TERM DEBT 399,604 405,749
DEFERRED FEDERAL INCOME TAXES AND OTHER CREDITS 82,905 81,812
COMPANY-OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY HOLDING
SOLELY COMPANY CONVERTIBLE DEBENTURES 200,000 --
SHAREHOLDERS' EQUITY
Common stock, $1 par value 25,067 25,067
Additional paid-in capital 255,735 255,735
Retained earnings 405,115 358,307
Cost of common shares in treasury (85,266) (85,783)
---------- ----------
600,651 553,326
---------- ----------
$1,428,602 $1,185,831
========== ==========
See notes to consolidated financial statements.
</TABLE>
-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 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $280,402 $282,687 $579,510 $579,747
COSTS AND EXPENSES (INCOME)
Cost of products sold 221,995 222,568 450,439 455,042
Selling, general and administrative 25,262 21,089 50,326 44,046
Interest 2,805 3,840 7,096 8,213
Other income (6,672) (3,577) (9,096) (5,544)
-------- -------- -------- --------
243,390 243,920 498,765 501,757
-------- -------- -------- --------
INCOME BEFORE THE FOLLOWING ITEMS 37,012 38,767 80,745 77,990
Income taxes 12,430 13,076 27,169 26,051
-------- -------- -------- --------
24,582 25,691 53,576 51,939
Net dividends on preferred securities of subsidiary (1,788) -- (3,496) --
Minority interest in Chaparral -- (2,242) -- (3,780)
-------- -------- -------- --------
NET INCOME $ 22,794 $ 23,449 $ 50,080 $ 48,159
======== ======== ======== ========
BASIC
Average shares 21,341 21,060 21,331 21,031
Earnings per share $1.07 $1.12 $2.35 $ 2.30
======== ======== ======== ========
DILUTED
Average shares 24,513 21,810 24,669 21,619
Earnings per share $1.01 $1.08 $2.18 $ 2.23
======== ======== ======== ========
Cash dividends $.075 $.075 $.15 $.15
======== ======== ======== ========
See notes to consolidated financial statements.
</TABLE>
-4-
<PAGE>
(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Six months ended
November 30,
- ----------------------------------------------------------------------------------------
In thousands 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 50,080 $ 48,159
Loss (gain) on disposal of assets (2,662) 481
Non-cash items
Depreciation, depletion and amortization 38,589 28,683
Deferred taxes (1,006) (1,256)
Undistributed minority interest -- 3,557
Other - net 2,114 4,156
Changes in operating assets and liabilities
Notes and accounts receivable 21,894 (4,043)
Inventories and prepaid expenses (66,526) 11,554
Accounts payable and accrued liabilities 918 20,327
Real estate and investments 3,493 1,342
--------- --------
Net cash provided by operations 46,894 112,960
INVESTING ACTIVITIES
Capital expenditures Virginia steel facility (182,020) (13,749)
Capital expenditures other (55,050) (70,961)
Proceeds from disposition of assets 3,164 1,627
Other - net (3,503) (3,241)
--------- --------
Net cash used by investing (237,409) (86,324)
FINANCING ACTIVITIES
Proceeds of long-term borrowing 113,598 19,639
Net proceeds from issuance of subsidiary preferred securities 193,599 --
Debt retirements (119,860) (39,099)
Purchase of treasury shares (154) (317)
Common dividends paid (3,183) (3,142)
Other - net (1,275) (272)
--------- --------
Net cash provided (used) by financing 182,725 (23,191)
--------- --------
Increase (decrease) in cash (7,790) 3,445
Cash at beginning of period 16,718 19,834
--------- --------
Cash at end of period $ 8,928 $ 23,279
========= ========
See notes to consolidated financial statements.
</TABLE>
-5-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Texas Industries, Inc. ("TXI" or the "Company"), is a leading supplier of
construction materials through two business segments: cement, aggregate and
concrete products (the "CAC" segment) and structural steel and specialty bar
products (the "Steel" segment). Through the CAC segment, the Company produces
and sells cement, stone, sand and gravel, expanded shale and clay aggregate and
concrete products from facilities concentrated in Texas, Louisiana, and
California, with several products marketed throughout the United States.
Through its Steel segment, the Company produces and sells structural steel,
specialty bar products, merchant bar-quality rounds, reinforcing bar and
channels for markets in North America and, under certain market conditions,
Europe and Asia.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended November 30,
1998, are not necessarily indicative of the results that may be expected for the
year ended May 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended May 31, 1998.
Estimates. The preparation of financial statements and accompanying notes in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported. Actual results
could differ from those estimates.
Principles of Consolidation. The consolidated financial statements include the
accounts of the Company and all subsidiaries. The minority interest represents
the separate public ownership of Chaparral Steel Company ("Chaparral"), which
was acquired by the Company on December 31, 1997. Certain amounts in the prior
period financial statements have been reclassified to conform to the current
period presentation.
Cash Equivalents. For cash flow purposes, temporary investments which have
maturities of less than 90 days when purchased are considered cash equivalents.
Property, Plant and Equipment. Property, plant and equipment is recorded at
cost. Provisions for depreciation are computed generally using the straight-
line method. Provisions for depletion of mineral deposits are computed on the
basis of the estimated quantity of recoverable raw materials.
Intangible Assets. Goodwill and other intangibles is presented net of
accumulated amortization of $25.1 million at November 30, 1998 and $22.2 million
at May 31, 1998. Goodwill resulting from the acquisitions of Chaparral Steel
Company and Riverside Cement Company, totaling $143.5 million at November 30,
1998 and $145.6 million at May 31, 1998 (net of accumulated amortization), is
being amortized currently on a straight-line basis over 40-year periods. Other
intangibles consisting primarily of goodwill and non-compete agreements are
being amortized on a straight-line basis over periods of 2 to 15 years.
Management reviews remaining goodwill and other intangibles with consideration
toward recovery through future operating results (undiscounted) at the current
rates of amortization.
Income Taxes. The Company joins in filing a consolidated return with its
subsidiaries. Current and deferred tax expense is allocated among the members
of the group based on a stand-alone calculation of the tax of the individual
member.
Earnings Per Share ("EPS"). The Company adopted Statement of Financial
Accounting Standards No.128, "Earnings per Share" ("SFAS No. 128") for its
fiscal quarter ended February 28, 1998. SFAS No. 128 establishes new standards
for computing and presenting Basic and Diluted EPS and requires the restatement
of prior period EPS data.
-6-
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued
Basic EPS is computed by adjusting net income for the amortization of additional
goodwill in connection with a contingent payment for the acquisition of
Chaparral, then dividing by the weighted average number of common shares
outstanding during the period including certain contingently issuable shares.
Diluted EPS also adjusts net income for the net dividends on preferred
securities of subsidiary and the outstanding shares for the dilutive effect of
the preferred securities, stock options and awards.
Basic and Diluted EPS are calculated as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
November 30, November 30,
-------------------------------------------------------------------------------
In thousands except per share 1998 1997 1998 1997
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings:
Net income $22,794 $23,449 $50,080 $48,159
Contingent price amortization 58 58 116 116
------- ------- ------- -------
Basic earnings 22,852 23,507 50,196 48,275
Net dividends on preferred securities 1,788 -- 3,496 --
------- ------- ------- -------
Diluted earnings $24,640 $23,507 $53,692 $48,275
======= ======= ======= =======
Shares:
Weighted average shares outstanding 21,220 20,962 21,214 20,936
Contingently issuable shares 121 98 117 95
------- ------- ------- -------
Basic weighted-average shares 21,341 21,060 21,331 21,031
Stock option and award dilution 283 750 449 588
Preferred securities 2,889 -- 2,889 --
------- ------- ------- -------
Diluted weighted-average shares 24,513 21,810 24,669 21,619
======= ======= ======= =======
Basic earnings per share $1.07 $ 1.12 $2.35 $ 2.30
======= ======= ======= =======
Diluted earnings per share $1.01 $ 1.08 $2.18 $ 2.23
======= ======= ======= =======
</TABLE>
WORKING CAPITAL
Working capital totaled $263.3 million at November 30, 1998, compared to $227.0
million at May 31, 1998.
Notes and accounts receivable of $129.0 million at November and $151.2 million
at May are presented net of allowances for doubtful receivables of $3.7 million
at November and $3.4 million at May.
Inventories are summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------
In thousands November May
- ------------------------------------------------
<S> <C> <C>
Finished products $100,019 $59,290
Work in process 41,385 34,043
Raw materials and supplies 77,368 68,677
-------- --------
$218,772 $162,010
======== ========
</TABLE>
Inventories are stated at cost (not in excess of market) generally using the
last-in, first-out method (LIFO). If the average cost method (which
approximates current replacement cost) had been used, inventory values would
have been higher by $15.7 million at November and May.
-7-
<PAGE>
LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
In thousands November May
- ---------------------------------------------------------------------------
<S> <C> <C>
Revolving credit facility maturing in 2002, interest
rates from 5.38% to 8.25% $ 58,500 $ 82,750
Senior notes due through 2017, interest rates
average 7.28% 200,000 200,000
Senior notes due through 2008, interest rates
average 7.28% 75,000 75,000
Senior notes due through 2004, interest rates
average 10.2% 48,000 48,000
Senior note due through 1999, interest rate 14.2% 4,091 4,091
Variable-rate industrial development revenue bonds
maturing in 2028, interest rate approximately 3.5% 18,598 --
Pollution control bonds, due through 2007, interest
rate 6.19% (75% of prime) 6,915 7,255
Other, maturing through 2005, interest rates
from 8% to 10% 1,773 2,035
-------- --------
412,877 419,131
Less current maturities 13,273 13,382
-------- --------
$399,604 $405,749
======== ========
</TABLE>
Annual maturities of long-term debt for each of the five succeeding years are
$13.3, $9.0, $8.9, $8.8 and $67.2 million.
The Company has available a bank-financed $350 million long-term revolving
credit facility. In addition to the $58.5 million outstanding under this
facility, $76.2 million has been utilized to support letters of credit. The
Company may select at the time of borrowing an interest rate at either prime or
the applicable margin above LIBOR. Commitment fees at a current annual rate of
.125% are paid on the unused portion of this facility.
On September 22, 1998, the Company issued $50 million variable-rate industrial
development bonds. The proceeds are available to reimburse the Company for
costs incurred in connection with the construction of sewage and solid waste
disposal facilities at the Company's Virginia steel plant. The Company has
$31.4 million of these funds available to reimburse future construction costs.
The bonds are supported by letters of credit issued under the Company's
revolving credit facility. The interest rates on the bonds closely follow the
tax-exempt commercial paper rates.
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 six-month periods presented was $19.9 in
1998 and $10.1 million in 1997. Interest capitalized totaled $8.7 million and
$1.0 million in the 1998 and 1997 periods, respectively.
-8-
<PAGE>
PREFERRED SECURITIES OF SUBSIDIARY
On June 5, 1998, TXI Capital Trust I (the "Trust"), a Delaware business trust
wholly owned by the Company, issued 4,000,000 of its 5.5% Shared Preference
Redeemable Securities ("Preferred Securities") to the public for gross proceeds
of $200 million. The combined proceeds from the issuance of the Preferred
Securities and the issuance to the Company of the common securities of the Trust
were invested by the Trust in $206.2 million aggregate principal amount of 5.5%
convertible subordinated debentures due June 30, 2028 (the "Debentures") issued
by the Company. The Debentures are the sole assets of the Trust.
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of $2.75 per Preferred Security (equivalent to a
rate of 5.5% per annum of the stated liquidation amount of $50 per Preferred
Security). The Company has guaranteed, on a subordinated basis, distributions
and other payments due on the Preferred Securities, to the extent the Trust has
funds available therefor and subject to certain other limitations (the
"Guarantee"). The Guarantee, when taken together with the obligations of the
Company under the Debentures, the Indenture pursuant to which the Debentures
were issued, and the Amended and Restated Trust Agreement of the Trust
(including its obligations to pay costs, fees, expenses, debts and other
obligations of the Trust [other than with respect to the Preferred Securities
and the common securities of the Trust]), provide a full and unconditional
guarantee of amounts due on the Preferred Securities.
The Debentures are redeemable for cash, at the option of the Company, in whole
or in part, on or after June 30, 2001, or under certain circumstances relating
to federal income tax matters, at par, plus accrued and unpaid interest. Upon
any redemption of the Debentures, a like aggregate liquidation amount of
Preferred Securities will be redeemed. The Preferred Securities do not have a
stated maturity date, although they are subject to mandatory redemption upon
maturity of the Debentures on June 30, 2028, or upon earlier redemption.
Each Preferred Security is convertible at any time prior to the close of
business on June 30, 2028, at the option of the holder into shares of the
Company's common stock at a conversion rate of .72218 shares of the Company's
common stock for each Preferred Security (equivalent to a conversion price of
$69.235 per share of TXI Common Stock).
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
Common stock consists of:
----------------------------------------------------------------
In thousands November May
----------------------------------------------------------------
<S> <C> <C>
Shares authorized 40,000 40,000
Shares outstanding at end of period 21,220 21,188
Diluted average common shares outstanding 24,669 21,819
Shares held in treasury 3,847 3,879
Shares reserved for stock options and other 3,858 3,880
</TABLE>
There are authorized 100,000 shares of Cumulative Preferred Stock, no par value,
of which 20,000 shares are designated $5 Cumulative Preferred Stock (Voting),
redeemable at $105 per share and entitled to $100 per share upon dissolution.
On March 29, 1996 the Company redeemed and retired all outstanding shares of
such $5 Cumulative Preferred Stock. An additional 25,000 shares are designated
Series B Junior Participating Preferred Stock. The Series B Preferred Stock is
not redeemable and ranks, with respect to the payment of dividends and the
distribution of assets, junior to (i) all other series of the Preferred Stock
unless the terms of any other series shall provide otherwise and (ii) the $5
Cumulative Preferred Stock. Pursuant to a Rights Agreement, in November 1996,
the Company distributed a dividend of one preferred share purchase right for
each outstanding share of the Company's Common Stock. Each right entitles the
holder to purchase from the Company one two-thousandth of a share of the Series
B Junior Participating Preferred Stock at a price of $122.50, subject to
adjustment. The rights will expire on November 1, 2006 unless the date is
extended or the rights are earlier redeemed or exchanged by the Company pursuant
to the Rights Agreement.
-9-
<PAGE>
STOCK OPTION PLAN
The Company's stock option plan provides that non-qualified and incentive stock
options to purchase Common Stock may be granted to directors, officers and key
employees at market prices at date of grant. Generally, options become
exercisable in installments beginning one year after date of grant and expire
ten years later. A summary of option transactions for the six-month period
ended November 30, 1998, follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Weighted Average
Shares Under Option Option Price
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 1 1,816,963 $27.51
Granted 70,000 47.63
Exercised (31,310) 13.17
Cancelled (2,400) 41.20
--------- ------
Outstanding at November 30 1,853,253 $28.49
========= ======
</TABLE>
At November 30, 1998, there were 569,243 shares exercisable and 1,850,930 shares
available for future grants. Outstanding options expire on various dates to
October 20, 2008.
INCOME TAXES
Federal income taxes for the interim periods ended November 30, 1998 and 1997,
have been included in the accompanying financial statements on the basis of an
estimated annual rate. The estimated annualized tax rate is 33.6% for 1998
compared with 33.4% for 1997. The primary reason that these respective tax
rates differ from the 35% statutory corporate rate is due to goodwill expense
which is not tax deductible, percentage depletion which is tax deductible and
the state income tax expense. The Company made income tax payments of $23.0
million and $20.7 million in the six-month periods ended November 30, 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.
-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, 1998, and the related
condensed consolidated statements of income for the three-month and six-month
periods ended November 30, 1998 and 1997, and the condensed consolidated
statements of cash flows for the six-month periods ended November 30, 1998 and
1997. These financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Texas Industries, Inc. and
subsidiaries as of May 31, 1998, and the related consolidated statements of
income, shareholders' equity, and cash flows for the year then ended [not
presented herein] and in our report dated July 15, 1998, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of May 31, 1998, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
----------------------
December 14, 1998
-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, 1998 to the three-month and six-month periods
ended November 30, 1997.
GENERAL
The Company is a leading supplier of construction materials through two business
segments: cement, aggregate and concrete products (the "CAC" segment); and
structural steel and specialty bar products (the "Steel" segment). Through the
CAC segment, the Company produces and sells cement, stone, sand and gravel,
expanded shale and clay aggregate and concrete products. Through its Steel
segment, the Company produces and sells structural steel, specialty bar
products, merchant bar-quality rounds, reinforcing bar and channels.
Corporate resources include administration, financial, legal, environmental,
personnel and real estate activities which are not allocated to operations and
are excluded from operating profit.
RESULTS OF OPERATIONS
Net Sales. Consolidated net sales for the November 1998 quarter were $280.4
million compared to $282.7 million for the prior year period. CAC sales for the
current quarter at $150.2 million were up 40% from the prior year quarter with
six-month sales up 42%. Cement sales for the current quarter increased $30.8
million from the prior year due primarily to the Company's expansion into the
California cement market through the January 1998 acquisition of Riverside
Cement Company. Riverside's shipments were 8% lower than the August 1998
quarter with average prices unchanged. Sales from the Company's Texas plants
increased 6% over the prior year quarter. Shipments were 6% below the prior
year quarter offset by 9% higher average prices. Ready-mix sales increased
$10.5 million over the prior year quarter due to a 9% increase in volume and a
13% higher average selling price. Aggregate sales increased 12% on higher
average prices. Steel sales for the current quarter at $130.2 million were down
26% from the prior year quarter with six-month sales down 27%. In the current
quarter realized prices declined 2% with shipments declining 25%. Strong
nonresidential building activity has continued to sustain demand for structural
products in North America, however, an unprecedented increase in structural
steel imports resulted in a very competitive market. As the Company competes
for market share, prices for these products are expected to decline further.
The major stage of the bar mill upgrade project was completed during the
quarter. Mill downtime during the upgrade reduced bar mill shipments.
Business Segments
<TABLE>
<CAPTION>
Three months ended Six months ended
November 30, November 30,
-----------------------------------------------------------------------------------
In thousands 1998 1997 1998 1997
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES
Cement $ 69,605 $ 38,833 $145,749 $ 81,860
Ready-mix 57,708 47,246 123,426 99,919
Stone, sand & gravel 23,096 20,709 50,449 43,983
Other products 25,868 23,082 54,502 49,984
Interplant (26,066) (22,601) (55,038) (50,423)
-------- -------- -------- --------
TOTAL CAC 150,211 107,269 319,088 225,323
Bar mill 25,762 40,880 62,732 85,078
Structural mills 100,219 132,195 189,527 264,732
Transportation and other 4,210 2,343 8,163 4,614
-------- -------- -------- --------
TOTAL STEEL 130,191 175,418 260,422 354,424
-------- -------- -------- --------
TOTAL NET SALES $280,402 $282,687 $579,510 $579,747
======== ======== ======== ========
UNITS SHIPPED
Cement (tons) 915 594 1,916 1,251
Ready-mix (cubic yards) 956 881 2,076 1,867
Stone, sand & gravel (tons) 4,139 4,136 9,453 8,795
Bar mill (tons) 72 113 175 240
Structural mills (tons) 257 328 469 669
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
Business Segments-Continued
Three months ended Six months ended
November 30, November 30,
-------------------------------------------------------------------------------------------------------------------------
In thousands 1998 1997 1998 1997
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CAC OPERATIONS
Gross profit $55,393 $36,796 $119,095 $ 82,345
Less: Depreciation, depletion &
amortization 9,272 5,832 18,227 11,757
Selling, general & administrative 9,323 6,098 18,687 13,755
Other income (2,565) (432) (3,105) (1,192)
------- ------- -------- --------
OPERATING PROFIT 39,363 25,298 85,286 58,025
STEEL OPERATIONS
Gross profit 21,274 36,939 45,976 69,407
Less: Depreciation & amortization 10,050 8,303 19,877 16,485
Selling, general & administrative 7,151 8,203 15,530 16,887
Other income (416) (2,262) (916) (2,679)
------- ------- -------- --------
OPERATING PROFIT 4,489 22,695 11,485 38,714
------- ------- -------- --------
TOTAL OPERATING PROFIT 43,852 47,993 96,771 96,739
CORPORATE RESOURCES
Other income 3,691 883 5,075 1,673
Less: Depreciation & amortization 234 209 485 441
Selling, general & administrative 7,492 6,060 13,520 11,768
------- ------- -------- --------
(4,035) (5,386) (8,930) (10,536)
INTEREST EXPENSE (2,805) (3,840) (7,096) (8,213)
------- ------- -------- --------
INCOME BEFORE TAXES & OTHER ITEMS $37,012 $38,767 $ 80,745 $ 77,990
======= ======= ======== ========
</TABLE>
Operating Costs. Consolidated cost of products sold including depreciation,
depletion and amortization for the current quarter was $222.0 million, a
decrease of $600,000 from the prior year quarter. Costs for the current six-
month period was $450.4 million, a decrease of $4.6 million from the prior year
period. CAC costs increased $27.2 million in the quarter and $62.6 million in
the six-month period from the prior year due primarily to the addition of the
Riverside cement plants and increased ready-mix shipments. Steel costs
decreased $27.8 million in the quarter and $67.2 million in the six-month period
from the prior year due primarily to reduced shipments.
CAC selling, general and administrative expenses including depreciation and
amortization increased $3.8 million in the quarter and $5.9 million in the six-
month period from the prior year due primarily to the expanded cement operations
and higher incentive accruals. Steel expenses decreased $1.0 million in the
quarter and $1.4 million in the six-month period from the prior year due to
lower incentive accruals offsetting higher selling expense.
Operating Profit. Operating profit of $43.9 million in the current quarter was
$4.1 million lower than the prior year quarter. Profit of $96.8 million for the
current six-month period was comparable to the prior year. CAC operating profit
was up 56% over the prior year quarter and 47% over the prior year six-month
period. The Riverside acquisition contributed approximately half of the
increase. Ready-mix operations improved on increased volumes and higher prices.
Steel operating profit was $18.2 million below the prior year quarter and $27.2
million below the prior year six-month period due to reduced shipments and lower
prices.
Steel profits are being adversely impacted by the unprecedented volume of steel
imports from Russia, Asia and South America. As an international low-cost
supplier of structural steel products, the Company's focus has shifted from
maximizing margins to maintaining market share, and thus, the Company has
reduced structural beam prices accordingly. As a result, it is anticipated that
near term unit margins for these products will continue to decline.
-13-
<PAGE>
Corporate Resources. Selling, general and administrative expenses including
depreciation and amortization increased $1.4 million over the prior year quarter
and $1.8 million over the prior year six-month period primarily due to higher
incentive accruals. Other income increased $2.8 million in the current quarter
and $3.4 million in the current six-month period due to increased income from
interest and the Company's real estate operations.
Interest Expense. Interest expense net of $8.7 million of interest capitalized
was $7.1 million in the 1998 six-month period. Total interest incurred was $6.6
million higher than in the 1997 six-month period due to the increased borrowing
in the last fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $46.9 million, a decrease of $66.1
million from the prior year six-month period due primarily to changes in working
capital items which were partially offset by higher depreciation, depletion and
amortization expense. The decline in Steel shipments and prices reduced
receivables and sharply increased inventories. Accounts payable and accrued
expenses increased slightly as increased income tax and interest accruals were
offset by lower Steel incentive accruals. During the 1997 period, receivables
increased $4.0 million due to increased sales. Inventories declined $17.3
million on increased shipments. Accounts payable and accrued expenses increased
$20.3 million due in part to increased tax accruals.
Net cash used by investing activities was $237.4 million compared to $86.3
million during the prior year period, consisting principally of capital
expenditure items. Historically, capital expenditures have consisted of normal
replacement and technological upgrades of existing equipment and expansion of
the Company's operations. Expenditures for these activities were $55.1 million
in the current period. The fiscal year 1999 capital expenditures budget is
estimated at $90 million, 44% below fiscal year 1998 expenditures.
Additionally, capital expenditures of $274.7 million including $182.0 million
in the current period have been incurred for the construction of the Company's
Virginia steel facility. Production at this facility is scheduled to begin in
1999, with total costs for the site, utilities, equipment and installation
estimated to be $450 million. The Company has received a permit to expand the
production of its Midlothian, Texas cement plant from 1.3 to 2.8 million tons
per year. The preliminary design and engineering for this project is currently
underway. The project will require a capital commitment of approximately $250
million.
Net cash provided by financing activities was $182.7 million, compared to $23.2
million used during the prior year period. On June 5, 1998, TXI Capital Trust
I, a Delaware business trust wholly owned by the Company, issued 4,000,000 of
its 5.5% Shared Preference Redeemable Securities ("Preferred Securities") to the
public. Holders of the Preferred Securities are entitled to receive cumulative
cash distributions at an annual rate of $2.75 per Preferred Security accruing
from the date of issuance and payable quarterly in arrears commencing September
30, 1998. On September 22, 1998, the Company issued $50 million variable rate
industrial development bonds. The proceeds are available to reimburse the
Company for costs incurred in connection with the construction of sewage and
solid waste disposal facilities at the Company's Virginia steel plant. The
Company has $31.4 million of these funds available to reimburse future
construction costs. The bonds are supported by letters of credit issued under
the Company's $350 million revolving credit facility. At November 30, 1998 the
Company had available $215.3 million under the credit facility. The Company's
quarterly cash dividend at $.075 per common share remained unchanged from the
prior year period.
The Company generally finances its major capital expansion projects with long-
term borrowing. Maintenance capital expenditures and working capital are funded
by cash flow from operations. The Company expects cash from operations and
borrowings under its revolving credit facility to be sufficient to provide funds
for capital expenditure commitments, scheduled debt repayments and working
capital needs during the next two years.
-14-
<PAGE>
OTHER ITEMS
Litigation. On November 25, 1998, Chaparral Steel Company, a wholly owned
subsidiary, filed an action seeking damages, trebled as allowed by law, plus
interest and costs, in the District Court of Ellis County, Texas against Showa
Denko Carbon, Inc. ("SDC"); Showa Financing, K.K.; Showa Denko, K.K.; The
Carbide/Graphite Group, Inc. ("CGG"); SGL Carbon Aktiengesellschaft; SGL Carbon
Corp.; UCAR Carbon Company, Inc. ("UCAR"), and UCAR International, Inc.
(collectively "Defendants") asserting causes of action for illegal restraints of
trade in the sale of graphite electrodes. In related criminal actions, two of
the Defendants have plead guilty to criminal violations of the U.S. Antitrust
laws and have paid fines; and a third Defendant has announced that it has agreed
to cooperate with the U.S. Department of Justice investigation into the graphite
electrode industry in exchange for immunity from criminal prosecution for it and
some of its executives. For these reasons, although the Company's action is
still in its preliminary stages and no discovery yet effected, the Company
believes that it should, subject to inherent uncertainties of litigation,
prevail in its claims against the Defendants.
Year 2000 Compliance. Based on an assessment by the Company of its operating,
financial and management information systems, the Company determined that
modification or upgrading certain equipment and software would be necessary to
address Year 2000 issues. The Company began converting its computerized
business systems in 1992 in order to upgrade system capabilities and utilize
current hardware and software technology. To date, most systems have been
converted. Conversion of the remaining systems is expected before December
1999. The Company is currently addressing the manufacturing process control,
man-machine-interface, and other plant and operational systems and expects to
resolve all material Year 2000 issues before December 1999.
In addition, the Company has contacted its critical suppliers and others to
determine the extent to which the Company would be vulnerable to those third
parties' failure to remediate their own Year 2000 issues. The Company has
received written assurances from the most critical suppliers and has not been
informed of any material risks associated with other entities. There can be no
guarantee that the systems of these critical suppliers or other entities on
which the Company relies will be timely converted and would not have an adverse
effect on the Company's systems or operations. Management is currently
developing contingency plans which would attempt to mitigate supplier failures
in these areas. However, due to the dependency on public utilities and
transportation systems, there are limitations to contingent replacements for
these critical resources.
The Company believes that neither the cost of its planned upgrade and
modification program nor a failure to timely complete such program will have a
material impact on the operations or financial condition of the Company.
-15-
<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 20, 1998, shareholders
elected as Directors of the Company, Gerald R. Heffernan, Robert D. Rogers and
Ian Wachtmeister to terms expiring in 2001. Votes cast to elect Gerald R.
Heffernan were 18,023,741 affirmative, 54,416 opposed and 3,141,129 abstained or
non-voted. Votes cast to elect Robert D. Rogers were 18,031,802 affirmative,
46,355 opposed and 3,141,129 abstained or non-voted. Votes cast to elect Ian
Wachtmeister were 18,030,707 affirmative, 47,450 opposed and 3,141,129 abstained
or non-voted. Terms of office expire for the continuing directors Robert
Alpert, Eugenio Clariond Reyes, Richard I. Galland, and Elizabeth C. Williams in
1999 and for the continuing directors John M. Belk, Gordon E. Forward and James
M. Hoak, Jr. in 2000.
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
(3.2) Bylaws of the Company, as amended October 20, 1998
(10.1) Second Amendment to Second Amended and Restated Credit
Agreement among Texas Industries Inc., Certain Lenders, Certain
Co-Agents and NationsBank, N.A., as Administrative Lender dated
August 26, 1998
(15.1) Letter re: Unaudited Interim Financial Information
(27.1) Financial Data Schedule
This schedule contains summary financial information extracted from the
Registrant's Unaudited November 30, 1998 Consolidated Financial Statements and
is qualified in its entirety by reference to such financial statements.
The remaining exhibits have been omitted because they are not applicable or the
information required therein is included elsewhere in the financial statements
or notes thereto.
The Registrant did not file any reports on Form 8-K during the three-month
period ended November 30, 1998.
-16-
<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 8, 1999 /s/ Richard M. Fowler
- --------------- ------------------------------------------------
Richard M. Fowler
Vice President & Chief Financial Officer
January 8, 1999 /s/ James R. McCraw
- --------------- ------------------------------------------------
James R. McCraw
Vice President - Accounting/Information Services
-17-
<PAGE>
INDEX TO EXHIBITS
Exhibits Page
3.2 Bylaws of the Company, as amended October 20, 1998............... 19
10.1 Second Amendment to Second Amended and Restated Credit Agreement
dated August 26, 1998............................................ 25
15.1 Letter re: Unaudited Interim Financial Information.............. 28
27.1 Financial Data Schedule.......................................... **
** Electronically filed only.
-18-
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
TEXAS INDUSTRIES, INC.
As Adopted January 15, 1957,
Amended July 15, 1965,
Amended October 17, 1967
Amended October 21, 1969
Amended October 15,1974
Amended July 20, 1976
Classified Board Approved by Shareholders October 19, 1976,
Amended July 18, 1985
Amended July 17, 1986
Amended October 20, 1998
SECTION 1. In addition to its principal office in the State of
Delaware, the Corporation may also have offices at such other places both within
and without the State of Delaware as the Board of Directors shall from time to
time determine.
SECTION 2. All meetings of the stockholders for the election of
Directors shall be held in the City of Dallas, State of Texas, at such place
within such city as the Board of Directors may determine and which shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof. Meetings of stockholders for any other purpose may be held at such time
and place, within or without the State of Delaware, as shall be stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
SECTION 3. An annual meeting of the stockholders of the Corporation
shall be held on the third Tuesday of October in each year, at 9:30 o'clock in
the forenoon, unless such day is a legal holiday, in which case such meeting
shall be held on the first day thereafter which is not a legal holiday. At such
meeting the stockholders entitled to vote thereat shall elect by a plurality
vote a Board of Directors, and may transact such other business as may properly
be brought before the meeting.
SECTION 4. Special meetings of the stockholders of the Corporation may
be held only upon the call of the Chairman of the Board, the President or a
majority of the members of the Board of Directors. Such call shall state the
time, place and purposes of the meeting.
SECTION 5. Notice of the time and place of every Meeting of
stockholders and of the business to be acted on at such meeting shall be mailed
by the Secretary or the officer performing his duties, at least ten days before
the meeting, to each stockholder of record having voting power and entitled to
such notice at his last known post office address; provided, however, that if a
stockholder be present at a meeting, or in writing waives notice thereof before
or, after the meeting, notice of the meeting to such stockholder shall be
unnecessary.
SECTION 6. At least ten days before every election of Directors, a
complete list of the stockholders entitled to vote at said election, arranged in
alphabetical order, with the residence of each and the number of voting shares
held by each, shall be prepared by the Secretary. Such list shall be open at the
office of the Corporation in the City of Dallas, Texas, for said ten days, to
the examination of any stockholder, and shall be produced and kept at the time
and place of election during the whole time thereof, and subject to the
inspection of any stockholder who may be present.
-19-
<PAGE>
SECTION 7. The holders of a majority of the stock of the Corporation
issued and outstanding and having voting power present in person or represented
by proxy shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute, by the
Certificate of Incorporation, or by these Bylaws, but less than a quorum shall
have power to adjourn any meeting from time to time without notice other than
announcement at the meeting. The holders of a majority of the stock present and
entitled to vote at a du1y qualified meeting of stockholders shall have power to
act, unless the question is one upon which by express provision of the statutes
or of the Certificate of Incorporation or of these Bylaws a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
At any meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before such meeting. To be
properly brought before any meeting of stockholders, business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors of the Corporation, (b) otherwise
properly brought before such meeting by or at the direction of the Board of
Directors of the Corporation, or (c) otherwise properly brought before such
meeting by a stockholder. For business to be properly brought before such
meeting by a stockholder, the Secretary of the Corporation must have received
written notice from the stockholder (i) in the case of an annual meeting, not
less than 120 days prior to the anniversary date of the day the Corporation's
notice for the last annual meeting was sent to the stockholders; and (ii) in the
case of a special meeting, not later than the close of business on the seventh
day following the day on which the notice of the date of such special meeting is
mailed to the stockholders. Such stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before such meeting
(a) a brief description of the business desired to be brought before such
meeting and the reasons for conducting such business at such meeting, (b) the
name and address, as they appear on the Corporation's books, of the stockholder
proposing such business, (c) the class and number of shares of the securities of
the Corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. Notwithstanding anything
in these Bylaws to the contrary, no business shall be conducted at any meeting
of the stockholders except in accordance with the procedures set forth in this
Section 7.
SECTION 8. At every meeting of stockholders each stockholder entitled
to vote thereat shall be entitled to one vote for each share of stock having
voting power registered in his name on the books of the Corporation, and may
vote and otherwise act in person or by proxy appointed by an instrument in
writing subscribed by such stockholder; but no proxy shall be voted upon more
than three (3) years after its date unless such proxy provides for a longer
period.
The order of business at each meeting of the shareholders of the
Corporation shall be determined by the chairman of the meeting. The chairman of
the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts and things as are necessary
or desirable for the proper conduct of the meeting, including, without being
limited to, the dismissal of business not properly presented, the maintenance of
order and safety, the establishing of limitations on the time allotted to
questions or comments on matters before the meeting and on the affairs of the
Corporation, the establishing of restrictions on entry to the meeting after the
time prescribed for the commencement thereof and the declaring of the opening
and closing of the voting polls.
SECTION 9. Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of the stockholders of the Corporation and may not be effected
by any consent in writing by such stockholders.
SECTION 10. The property and business of the Corporation shall be
managed by a Board of not less than three, nor more than 21 Directors. At the
annual meeting of the shareholders in October 1976, the Board of Directors shall
be divided into three classes, each class being as nearly equal in number as
possible. The members of the first class shall hold office for a term of one
year; the members of the second class shall hold office for a term of two years;
the members of the third class shall hold office for a term of three years. At
all annual elections thereafter directors shall be elected by the shareholders
for a term of three years to succeed the directors whose term then expires;
provided that nothing herein shall be construed to prevent the election of a
director to succeed himself. Thereafter, within the limits herein
specified, the number of Directors shall be fixed and may be changed, from time
to time, by resolution of the Board of Directors. The Directors shall be
elected at the annual meeting of the stockholders, except as provided in Section
11 of these Bylaws, and each Director elected shall hold office until his
successor shall be elected and shall qualify. Directors need not be
stockholders.
-20-
<PAGE>
Only persons who are nominated in accordance with the procedures set
forth in this Section 10 shall be eligible for election as Directors of the
Corporation. Nominations of persons for election to the Board of Directors of
the Corporation may be made at a meeting of stockholders (a) by or at the
direction of the Board of Directors of the Corporation or (b) by any stockholder
of the Corporation entitled to vote for the election of Directors at such
meeting who complies with the notice procedures set forth in this Section 10.
Such nominations made by a stockholder shall be made pursuant to a written
notice received by the Secretary of the Corporation (i) in the case of an annual
meeting, not less than 45 days nor more than 60 days prior to such meeting, and
(ii) in the case of a special meeting, not later than the close of business on
the seventh day following the day on which notice of the date of such special
meeting is mailed to stockholders. Such stockholder's notice to the Secretary
shall set forth (a) the name and address, as they appear on the Corporation's
books, of the stockholder who intends to make the nomination, (b) the name,
occupation and business and residence addresses of each person whom the
stockholder intends to nominate, (c) the class and number of shares of the
securities of the Corporation which are beneficially owned by the stockholder,
(d) a description of all arrangements and understandings between the stockholder
and each person the stockholder intends to nominate and each other person or
persons, if any, (naming such person or persons and stating the beneficial
ownership of securities of the Corporation of each such person) pursuant to
which the nomination or nominations will be made by the stockholder, (e) such
additional information with respect to each nominee proposed by the stockholder
as would have been required to be included in a proxy statement pursuant to the
then effective proxy rules of the Securities and Exchange Commission had each
such proposed nominee been nominated by the Board of Directors of the
Corporation, (f) the stockholders' representation that he or she intends to
appear in person or by proxy at the meeting to nominate each such proposed
nominee, and (g) the signed consent of each such proposed nominee to being
nominated and to serving as a Director if elected. No person shall be eligible
for election as a Director of the Corporation unless nominated in accordance
with the procedures set forth in this Section 10.
SECTION 11. If any vacancies occur in the Board of Directors caused by
death, resignation, retirement, disqualification or removal from office of any
Director or otherwise, or any new directorship is created by any increase in the
authorized number of Directors, a majority of the Directors then in office,
though less than a quorum, may choose a successor or successors, or fill the
newly created directorship, and the Director so chosen shall hold office only
until the expiration of the term of his predecessor or, as to any new
directorship, until the end of the term to which he is so chosen and until his
successor shall be duly elected and qualified, unless sooner displaced.
SECTION 12. Meetings of the Board of Directors shall be held at the
times fixed by resolutions of the Board or upon call of the Chairman of the
Board or any two Directors and such meetings, whether regular or special, may be
held either within or without the State of Delaware. The Secretary or officer
performing his duties shall give reasonable notice (which need not in any event
exceed two [2] days) of all meetings of Directors, provided that a meeting may
be held without notice immediately after the annual election, and notice need
not be given of regular meetings held at times fixed by resolution of the Board.
Meetings may be held at any time without notice if all the directors are present
or if those not present waive notice either before or after the meeting. Notice
by mail or telegraph to the usual business or residence address of the Directors
not less than the time above specified before the meeting shall be sufficient.
One-third of the Directors, but in no case less than two Directors, shall
constitute a quorum for the transaction of business, and the act of a majority
of the Directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors except as may be otherwise specifically provided
by statute or by the Certificate of Incorporation or by these Bylaws.
SECTION 13. The Board of Directors shall have power to authorize the
payment of compensation to the Directors for services to the Corporation,
including fees for attendance at meetings of the Board of Directors, of the
Executive Committee and of other committees and to determine the amount of such
compensation and fees.
-21-
<PAGE>
SECTION 14. The Board of Directors, as soon as may be after the
election of Directors in each year, shall appoint a Chairman of the Board, a
President, one or more Vice Presidents, a Secretary and a Treasurer, and may
from time to time appoint other Vice Presidents and such other officers as they
may deem proper. None of such officers (except for the Chairman of the Board)
need be a member of the Board of Directors. The Board of Directors may appoint
from the members of the Executive Committee, a Chairman of the Executive
Committee, if they shall have established an Executive Committee pursuant to
Section 17 of these Bylaws. Two or more offices, including offices of Chairman
of the Board and President, may be held by the same person, except that where
the offices of President and Secretary are held by the same person, such person
shall not hold any other office.
SECTION 15. The term of office of all officers shall be until the next
election of Directors and until their respective successors are chosen and
qualified, or until they shall die or resign but any officer may be removed from
office at any time by the Board of Directors. Vacancies in any office may be
filled by the Board at the meeting.
SECTION 16. Except as otherwise provided by the Board of Directors:
the President of the Corporation shall be the chief executive officer of the
Corporation; provided that the Chairman of the Board shall preside at all
meetings of the stockholders and Directors, including meetings of the Executive
Committee, at which such officer is present; the chairman of the Executive
Committee, if such office shall have been filled by the Board, shall, in the
absence of the Chairman of the Board, preside at all meetings of the
stockholders and Directors, and shall have such other powers and duties as the
Chairman of the Board shall delegate to him or the Board of Directors shall
prescribe; and the President shall be the chief administrative officer of the
Corporation. The other officers of the Corporation shall have such powers and
duties as usually pertain to their offices, except as modified by the Board of
Directors, and shall also have such powers and duties as may from time to time
be conferred upon them by the Board of Directors.
SECTION 17. The Board of Directors may, by a resolution passed by a
majority of the whole Board, appoint an Executive Committee, to consist of the
Chairman of the Board and such number of the Directors as the Board may from
time to time determine, which shall have and may exercise during the intervals
between the meetings of the Board all the powers vested in the Board except the
power to fill vacancies in the Board, the power to change the membership of or
fill vacancies in said Committee and the power to change the Bylaws. Such
Committee shall continue in existence until the next annual election of
Directors, unless sooner terminated by a resolution passed by a majority of the
whole Board. The Board shall have the power at any time to change the membership
of such Committee and to fill vacancies in it. The Executive Committee may make
rules for the conduct of its business and may appoint such committees and
assistants as it may deem necessary. A majority of the members of said
Committee shall constitute a quorum.
SECTION 18. In addition to the Executive Committee, the Board of
Directors may, by resolution passed by a majority of the whole Board, designate
one or more other committees, each committee to consist of two or more of the
Directors of the Corporation, which to the extent provided in said resolution,
shall have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and may have power to
authorize the seal of the Corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as may
be determined from time to time by resolution adopted by the Board of Directors.
SECTION 19. Whenever under the provisions of the statutes or of the
Certificate of Incorporation or of these Bylaws, notice is required to be given
to any Director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
Director or stockholder at such address as appears on the books of the
Corporation, and such notice shall be deemed to be given at the time when the
same shall be thus mailed. Whenever notice is required to be given, a waiver
thereof in writing signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
-22-
<PAGE>
SECTION 20. Certificates of stock shall be of such form and device as
the Board of Directors may elect and shall be signed by the Chairman of the
Board of Directors, the President, or a Vice President and the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, but where any
such certificate is signed (1) by a transfer agent or an assistant transfer
agent or (2) by a transfer clerk acting on behalf of the Corporation and by a
registrar, the signatures of any such officers of the Corporation may be
facsimiles, engraved or printed.
SECTION 21. The stock of the Corporation shall be transferable or
assignable only on the books of the Corporation by the holders in person, or by
attorney, on the surrender of the certificates therefor. The Board of Directors
may appoint one or more transfer agents and registrars of the stock.
SECTION 22. The Corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
SECTION 23. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the Board of Directors may, in its sole
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require and/or
give the Corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost or destroyed.
SECTION 24. The Board of Directors shall have the power to close the
stock transfer books of the Corporation for a period not exceeding fifty (50)
days preceding the date of any meeting of stockholders, or the date for payment
of any dividend, or the date for the allotment of rights, or the date when any
change or conversion or exchange of capital stock shall go into effect. In lieu
of closing the stock transfer books as aforesaid, the Board of Directors is
hereby authorized to fix in advance a date, not exceeding fifty (50) days
preceding the date of any meeting of stockholders or the date for the payment of
any dividend or the date for the allotment of rights, or the date when any
change or conversion or exchange of capital stock shall go into effect, as a
record date for the determination of the stockholders entitled to notice of and
to vote at, any such meeting and any adjournment thereof, or entitled to receive
payment of any such dividends, or to any such allotment of rights, or to
exercise the rights in respect of any such change, conversion or exchange of
capital stock, and in such case such stockholders and only such stockholders as
shall be stockholders of record on the date so fixed shall be entitled to such
notice of, and to vote at, such meeting and any adjournment thereof, or to
receive payment of such dividend, or to receive such allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
stock on the books of the Corporation after any such record date fixed as
aforesaid.
SECTION 25. The Board of Directors are authorized to select such
depositaries as they shall deem proper for the funds of the Corporation. All
checks and drafts against such deposited funds shall be signed and countersigned
by persons to be specified by the Board of Directors.
SECTION 26. The corporate seal of the Corporation shall be in such form
as the Board of Directors shall prescribe. Said seal may be used by causing it
or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
-23-
<PAGE>
SECTION 27. The Corporation shall indemnify every person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Corporation, by
reason of the fact that said person is or was a director, officer, employee, or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement incurred by said person
in connection with such action, suit or proceeding, to the full extent permitted
by the Delaware General Corporation Law or any other applicable law in effect
from time to time. Expenses (including attorneys' fees) incurred by an officer
or director in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of any such action,
suit or proceeding upon receipt of an undertaking by or on behalf of such
officer or director to repay such amount if it shall ultimately be determined
that such person is not entitled to be indemnified as authorized in this
Section. Such expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the Board of Directors deems
appropriate. The indemnification provided in this Section shall not be deemed
exclusive of any other right to which a person seeking indemnity may be entitled
under any law (common or statutory), agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in said person's
official capacity and as to action in another capacity while holding office or
while employed by or acting as agent for the Corporation, and shall continue as
to a person who has ceased to be a director, officer, employee or agent, and
shall inure to the benefit of the estate, heirs, executors and administrators of
said person. All rights to indemnification under this Section shall be deemed to
be a contract between the Corporation and each director, officer, employee or
agent of the Corporation who serves or served in such capacity at any time while
this Section is in effect. Any repeal or modification of this Section or any
repeal or modification of relevant provisions of the Delaware General
Corporation Law or any other applicable laws shall not in any way diminish any
rights to indemnification of such director, officer, employee or agent of the
Corporation hereunder. The Corporation shall purchase and maintain insurance in
such principal amounts as shall be approved by resolution of the Board of
Directors of the Corporation from time to time on behalf of each said person
against any liability asserted against and incurred by said person in any such
aforesaid capacity, or arising out of said person's status as such, to the full
extent permitted by the Delaware General Corporation Law or any other applicable
law in effect from time to time. If this Section or any portion thereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, officer, employee and
agent of the Corporation as to costs, charges and expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement with respect to any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Corporation, to the
full extent permitted by any applicable portion of this Section that shall not
have been invalidated and to the full extent permitted by applicable law.
SECTION 28. These Bylaws may be amended, altered, changed, added to or
repealed by resolutions adopted by a majority of the entire Board of Directors
or by resolutions adopted by the affirmative vote of the holders of 75 percent
or more of the combined voting power of the then outstanding shares of stock of
all classes and series of the corporation entitled to vote generally in the
election of directors, voting together as a single class, at a duly called
meeting of the stockholders, provided that notice of the proposed change in the
Bylaws is contained in the notice of the meeting.
-24-
<PAGE>
EXHIBIT 10.1
SECOND AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(this, "Second Amendment"), dated as of August 26, 1998, is entered into among
TEXAS INDUSTRIES, INC., a Delaware corporation (the "Borrower"), the banks
listed on the signature pages hereof (the "Lenders"), certain Co-Agents (the
"Co-Agents"), and NATIONSBANK, N.A. (successor by merger to NationsBank of
Texas, N.A.), as Administrative Lender for the Lenders (in said capacity, the
"Administrative Lender").
BACKGROUND
----------
A. The Borrower, the Lenders, the Co-Agents, and the
Administrative Lender are parties to that certain Second Amended and Restated
Credit Agreement, dated as of December 18, 1997 as amended by that certain First
Amendment to Second Amendment and Restated Credit Agreement, dated as of May 28,
1998 (said Amended and Restated Credit Agreement, as amended, the "Credit
Agreement"; the terms defined in the Credit Agreement and not otherwise defined
herein shall be used herein as defined in the Credit Agreement).
B. The Borrower, the Lenders, the Co-Agents, and the Administrative
Lender desire to amend the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower, the
Lenders, the Co-Agents, and the Administrative Lender covenant and agree as
follows:
1. AMENDMENTS.
(a) Article I of the Credit Agreement is hereby amended by adding the
defined term "Chaparral East Project Letter of Credit" thereto in proper
---------------------------------------
alphabetical order to read as follows:
"Chaparral East Proiect Letters of Credit" means those two certain
----------------------------------------
irrevocable letters of credit to be issued by the Issuing Bank in
connection with the $75,000,000 Industrial Development Authority of
Dinwiddie County, Virginia Exempt Facility Revenue Bonds (Chaparral East
Project) which shall provide for renewal thereof for additional one-year
periods, but which in no event shall be extended beyond the Maturity Date
(b) Section 2.16(a) of the Credit Agreement is hereby amended by amending
the second and third sentences thereof to read as follows:
"No Letter of Credit (other than the Chaparral East Project Letters of
Credit) shall be issued to support any obligation of the Borrower or
any Subsidiary in respect of debt for borrowed money. No Letter of
Credit (other than the Chaparral East Project Letters of Credit) shall
have an expiration date (including all rights of renewal) later than
the earlier of (i) the Maturity Date or (ii) one year after the date
of issuance thereof."
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
--------------------------------------------------------
execution and delivery hereof, the Borrower represents and warrants that, as of
the date hereof and after giving effect to the amendments contemplated by the
foregoing Section 1:
(a) the representations and warranties contained in the Credit Agreement
are true and correct on and as of the date hereof as made on and as of such
date;
(b) no event has occurred and is continuing which constitutes a Default or
an Event of Default;
-25-
<PAGE>
(c) the Borrower has full power and authority to execute and deliver this
Second Amendment, and this Second Amendment and the Credit Agreement, as amended
hereby, constitute the legal, valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms, except as enforceability
may be limited by applicable debtor relief laws and by general principles of
equity (regardless of whether enforcement is sought in a proceeding in equity or
at law) and except as rights to indemnity may be limited by federal or state
securities laws;
(d) neither the execution, delivery and performance of this Second
Amendment or the Credit Agreement, as amended by this Second Amendment, nor the
consummation of any transactions herein or therein will contravene or conflict
with any law to which the Borrower or any of its Subsidiaries is subject or any
indenture, agreement or other instrument to which the Borrower or any of its
Subsidiaries or any of their respective property is subject; and
(e) no authorization, approval consent, or other action by, notice to, or
filing with, any governmental authority or other Person is required for the
execution, delivery or performance by the Borrower of this Second Amendment or
the acknowledgment by any Guarantor of this Second Amendment.
3. CONDITIONS OF EFFECTIVENESS. This Second Amendment shall be effective
---------------------------
as of August 26, 1998, subject to the following:
(a) the Administrative Lender shall have received counterparts of this
Second Amendment executed by the Determining Lenders;
(b) the Administrative Lender shall have received counterparts of this
Second Amendment executed by the Borrower and acknowledged by each Guarantor;
and
(c) the Administrative Lender shall have received, in form and substance
satisfactory to the Administrative Lender and its counsel, such other documents,
certificates and instruments as the Administrative Lender shall require.
4. GUARANTOR'S ACKNOWLEDGMENT. By signing below, each of the Guarantors
--------------------------
(i) acknowledges, consents and agrees to the execution, delivery and performance
by the Borrower of this Second Amendment, (ii) acknowledges and agrees that its
obligations in respect of its Subsidiary Guaranty are not released, modified,
impaired or affected in any manner by this Second Amendment or any of the
provisions contemplated herein, (iii) ratifies and confirms its obligations
under its Subsidiary Guaranty and (iv) acknowledges and agrees that it has no
claims or offsets against, or defenses or counterclaims to, its Subsidiary
Guaranty.
5. REFERENCE TO THE CREDIT AGREEMENT.
---------------------------------
(a) Upon the effectiveness of this Second Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", or words of like import shall
mean and be a reference to the Credit Agreement, as affected and amended hereby.
(b) The Credit Agreement, as amended by the amendments referred to above,
shall remain in full force and effect and is hereby ratified and confirmed.
6. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all
-------------------------
costs and expenses of the Administrative Lender in connection with the
preparation, reproduction, execution and delivery of this Second Amendment and
the other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Lender with respect thereto and with respect to advising the Administrative
Lender as to its rights and responsibilities under the Credit Agreement, as
hereby amended).
-26-
<PAGE>
7. EXECUTION IN COUNTERPARTS. This Second Amendment may be executed in
-------------------------
any number of counterparts and by different parties hereto in separate
counterparts, each which when so executed and delivered shall be deemed to be an
original and all of which when taken together shall constitute but one and the
same instrument.
8. GOVERNING LAW: BINDING EFFECT. This Second Amendment shall be
------------------------------
governed by and construed in accordance with the laws of the State of Texas and
shall be binding upon the Borrower and each Lender and their respective
successors and assigns.
9. HEADINGS. Section headings in this Second Amendment are included
--------
herein for convenience of reference only and shall not constitute a part of this
Second Amendment for any other purpose.
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS SECOND
----------------
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO ORAL UNWRITTEN
AGREEMENTS BETWEEN THE PARTIES.
- --------------------------------------------------------------------------------
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
- --------------------------------------------------------------------------------
-27-
<PAGE>
EXHIBIT 15.1
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 14, 1998, relating to the unaudited condensed
consolidated interim financial statements of Texas Industries, Inc., which are
included in its Form 10-Q for the quarter ended November 30, 1998.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part
of the Registration Statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
/s/ Ernst & Young LLP
----------------------
January 8, 1999
Dallas, Texas
-28-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED NOVEMBER 30, 1998 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-31-1999
<PERIOD-END> NOV-30-1998
<CASH> 8,928
<SECURITIES> 0
<RECEIVABLES> 132,739
<ALLOWANCES> 3,693
<INVENTORY> 218,772
<CURRENT-ASSETS> 408,766
<PP&E> 1,495,021
<DEPRECIATION> 678,659
<TOTAL-ASSETS> 1,428,602
<CURRENT-LIABILITIES> 145,442
<BONDS> 399,604
200,000
0
<COMMON> 25,067
<OTHER-SE> 575,584
<TOTAL-LIABILITY-AND-EQUITY> 1,428,602
<SALES> 579,510
<TOTAL-REVENUES> 579,510
<CGS> 450,439
<TOTAL-COSTS> 450,439
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 511
<INTEREST-EXPENSE> 7,096
<INCOME-PRETAX> 80,745
<INCOME-TAX> 27,169
<INCOME-CONTINUING> 50,080
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,080
<EPS-PRIMARY> 2.35
<EPS-DILUTED> 2.18
</TABLE>
