<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED).
For the fiscal year ended May 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED).
For the transition period from _______ to ________
Commission File Number 1-4887
TEXAS INDUSTRIES, INC.
(Exact name of registrant as specified in the charter)
<TABLE>
<S> <C>
Delaware 75-0832210
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1341 West Mockingbird Lane, #700W, Dallas, Texas 75247-6913
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (972) 647-6700
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
----------------------------- -----------------------------------------
<S> <C>
Common Stock, Par Value $1.00 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X].
The aggregate market value of the Registrant's Common Stock, $1.00 par value,
held by non-affiliates of the Registrant as of June 30, 2000 was $589,853,480.
As of August 21, 2000, 21,070,893 shares of the Registrant's Common Stock, $1.00
par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Registrant's definitive proxy statement for the annual meeting
of shareholders to be held October 17, 2000, are incorporated by reference into
Part III.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
PART I
<S> <C> <C>
Item 1. Business..............................................................................................1
Item 2. Properties............................................................................................7
Item 3. Legal Proceedings.....................................................................................7
Item 4. Submission of Matters to a Vote of Security Holders...................................................7
Item 4A. Executive Officers of the Registrant..................................................................8
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters..........................9
Item 6. Selected Financial Data...............................................................................9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...........................................16
Item 8. Financial Statements and Supplementary Data..........................................................16
Item 9. Disagreements on Accounting and Financial Disclosures................................................32
PART III
Item 10. Directors and Executive Officers of the Registrant...................................................32
Item 11. Executive Compensation...............................................................................32
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................................32
Item 13. Certain Relationships and Related Transactions.......................................................32
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................32
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Texas Industries, Inc. and subsidiaries (unless the context indicates otherwise,
collectively, the "Registrant", the "Company" or "TXI"), is a leading supplier
of construction materials through two business segments: cement, aggregate and
concrete products (the "CAC" segment); and structural steel and specialty bar
products (the "Steel" segment). Through the CAC segment, TXI produces and sells
cement, stone, sand and gravel, expanded shale and clay aggregate and concrete
products. Through its Steel segment, TXI produces and sells structural steel,
piling products, specialty bar products, merchant bar-quality rounds,
reinforcing bar and channels. The Company is the largest producer of cement in
Texas, a major cement producer in California and the second largest supplier of
structural steel products in North America. Demand for structural steel, cement,
aggregate and concrete products is primarily driven by construction activity,
while specialty bar products supply the original equipment manufacturers, tool
and oil country goods markets.
Incorporated April 19, 1951, the Registrant began its cement operations in 1960
with the opening of its Midlothian, Texas facility and added its steel
operations in 1975 with the construction of a plant in Midlothian. TXI has
derived significant benefits as a producer of both cement and steel, primarily
in lowering production costs and enhancing productivity through the innovative
recycling of by-products of manufacturing.
On December 31, 1997, the Company acquired Riverside Cement Company, the owner
of a 1.3 million ton per year portland cement plant and a 100,000 ton per year
specialty white cement plant. The acquisition increased TXI's cement capacity by
60% and opened the California regional cement market to the Company. In March
1999, TXI began the expansion of its Midlothian, Texas cement plant. Completion
is expected during the fall of 2000, increasing the plant's production from 1.3
to 2.8 million tons per year. TXI's structural steel facility in Virginia began
operations during the August 1999 quarter, and after the start-up phase will
expand TXI's steel capacity by approximately two-thirds. On December 31, 1997,
the Company acquired the minority interest in its 85% owned subsidiary,
Chaparral Steel Company.
(b) Financial Information about Industry Segments
Financial information for the Registrant's two industry segments, is presented
in Part II, Item 7 "Management's Discussion and Analysis of Financial Condition
and Results of Operations" on pages 11 and 12, incorporated herein by reference.
(c) Narrative Description of Business
CEMENT, AGGREGATE AND CONCRETE
The CAC business segment includes the manufacture and sale of cement,
aggregates, ready-mix concrete, concrete block and brick. Production and
distribution facilities are concentrated primarily in Texas, Louisiana and
California, with markets extending into contiguous states. In addition, TXI has
certain patented and unpatented mining claims in southern California which
contain deposits of limestone. The Company does not place heavy reliance on
patents, franchises, licenses or concessions related to its CAC operations.
CEMENT
TXI's principal product is portland cement. The Company also produces specialty
cements such as white, masonry, adobe and oil well.
Cement production facilities are located at four sites in Texas and California:
Midlothian, Texas, south of Dallas/Fort Worth, the largest cement plant in
Texas; Hunter, Texas, south of Austin; and Oro Grande and Crestmore, California,
both near Los Angeles. Except for the Crestmore facility, the limestone reserves
used as the primary raw material are located on fee-owned property adjacent to
each of the plants. Raw material for the Crestmore facility is purchased from
outside suppliers. Information regarding each of the Company's facilities is as
follows:
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<TABLE>
<CAPTION>
Rated Annual Productive Manufacturing Service Estimated Minimum
Plant Capacity - (Tons of Clinker) Process Date Reserves - Years
----- ---------------------------- ------------- ------- -----------------
<S> <C> <C> <C> <C>
Midlothian, TX 1,300,000 Wet 1960 100
Hunter, TX 800,000 Dry 1979 100
Oro Grande, CA 1,300,000 Dry 1948 90
Crestmore, CA 100,000 Dry 1962 N/A
</TABLE>
The Company uses its patented CemStar process in both of its Texas facilities
and its Oro Grande, California facility to increase combined annual production
by approximately 8%. The CemStar process adds "slag," a co-product of
steel-making, into a cement kiln along with the regular raw material feed. The
slag serves to increase the production of clinker which is then ground to make
cement. The primary fuel source for all of the Company's facilities is coal;
however, the Company displaces approximately 35% of its coal needs at its
Midlothian plant and approximately 10% of its coal needs at its Hunter plant by
utilizing alternative fuels.
The Company produced approximately 3.6 million tons of finished cement in 2000,
3.4 million tons in 1999 and 2.7 million tons in 1998. Total annual shipments of
finished cement were approximately 4.1 million tons in 2000, 3.9 million tons in
1999 and 2.9 million tons in 1998 of which 3.1 million tons in 2000, 2.8 million
tons in 1999 and 2.0 million tons in 1998 were shipped to outside trade
customers.
The Company markets its products throughout the southwestern United States. Its
principal marketing area includes the states of Texas, Louisiana, Oklahoma,
California, Nevada, Arizona and Utah. Sales offices are maintained throughout
the marketing area and sales are made primarily to numerous customers in the
construction industry, no one of which accounted for more than ten percent of
the trade sales volume in 2000.
The Company distributes cement from its plants by rail or truck to eight
distribution terminals located throughout its marketing area.
The cement industry is highly competitive with suppliers differentiating
themselves based on price, service and quality.
AGGREGATE, CONCRETE AND OTHER PRODUCTS
TXI's aggregate business, which includes sand, gravel, crushed limestone and
expanded shale and clay, is conducted from facilities primarily serving the
Dallas/Fort Worth, Austin and Houston areas in Texas; the Alexandria, New
Orleans, Baton Rouge and Monroe areas in Louisiana; the Oakland/San Francisco
and Los Angeles areas in California; and the Denver area in Colorado. The
following table summarizes certain information about the Registrant's aggregate
production facilities:
<TABLE>
<CAPTION>
Estimated Annual Estimated
Number of Productive Minimum
Type of Facility and General Location Plants Capacity Reserves - Years
-------------------------------------- ------------ ------------------- ----------------
<S> <C> <C> <C>
Crushed Limestone
North Central Texas 1 7.1 million tons 30
Sand & Gravel
North Central Texas 4 4.0 million tons 26
Central Texas 3 3.6 million tons 12
Louisiana 10 7.4 million tons 28
South Central Oklahoma 1 1.2 million tons 13
Expanded Shale & Clay
North Central & South Texas 2 1.3 million cu. yds. 25
California 2 .6 million cu. yds. 25
Colorado 1 .4 million cu. yds. 25
</TABLE>
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Reserves identified with the facilities shown above and additional reserves
available to support future plant sites are contained on approximately 40,000
acres of land, of which approximately 21,000 acres are owned in fee and the
remainder leased. The expanded shale and clay plants operated at 90 percent of
capacity for 2000 with sales of approximately 2.0 million cubic yards.
Production for the remaining aggregate facilities was 79 percent of practical
capacity and sales for the year totaled 17.8 million tons, of which
approximately 12.6 million tons were shipped to outside trade customers. In
addition, the Registrant owns and operates three industrial sand plants and an
aggregate blending facility.
The cost of transportation limits the marketing of these various aggregates to
the areas relatively close to the plant sites. Consequently, sales of these
products are related to the level of construction activity near these plants.
These products are marketed by the Company's sales organization located in the
areas served by the plants and are sold to numerous customers, no one of which
would be considered significant to the Company's business. The distribution of
these products is provided to trade customers principally by contract or
customer-owned haulers, and a limited amount of these products is distributed by
rail for affiliated usage.
The Company's ready-mix concrete operations are situated in three areas in Texas
(Dallas/Fort Worth/Denton, Houston and East Texas), in north and central
Louisiana, and at one location in southern Arkansas. The following table
summarizes various information concerning these facilities:
<TABLE>
<CAPTION>
Location Number of Plants Number of Trucks
-------- ---------------- ----------------
<S> <C> <C>
Texas 35 514
Louisiana 21 153
Arkansas 1 2
</TABLE>
The plants listed above are located on sites owned or leased by the Company. TXI
manufactures and supplies a substantial amount of the cement and aggregates used
by the ready-mix plants with the remainder being purchased from outside
suppliers. Ready-mix concrete is sold to various contractors in the construction
industry, no one of which would be considered significant to the Company's
business.
The major concrete products manufactured and marketed by the Company are
summarized below:
<TABLE>
<CAPTION>
Products Produced/Sold Locations
---------------------- ---------
<S> <C>
Sakrete and related products Dallas/Fort Worth, Texas
Austin, Texas
Cresson, Texas
Houston, Texas
Bossier City, Louisiana
Concrete block Alexandria, Louisiana
Bossier City, Louisiana
Monroe, Louisiana
Clay brick Athens, Texas
Mineral Wells, Texas
Mooringsport, Louisiana
</TABLE>
The plant sites for the above products are owned by the Company. The products
are marketed by the Company's sales force in each of these locations, and are
primarily delivered by trucks owned by the Company. Because the cost of delivery
is significant to the overall cost of most of these products, the market area is
generally restricted to within approximately one hundred miles of the plant
locations. These products are sold to various contractors, owners and
distributors, no one of which would be considered significant to the Company's
business.
In most of TXI's principal markets for concrete products, the Company competes
vigorously with at least three other vertically integrated concrete companies.
The Company believes that it is a significant participant in each of the Texas
and Louisiana concrete products markets. The principal methods of competition in
concrete products markets are quality and service at competitive prices.
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STEEL
TXI's steel facilities, located in Midlothian, Texas and Dinwiddie County,
Virginia, follow a market mill concept which entails the low cost production of
a broader array of steel products than a traditional mini-mill. TXI uses its
patented near net shape casting technology at both facilities. The process
provides energy and capital cost savings in the making of wide flange beams and
other structural steel products. The Texas facility has two electric arc
furnaces with continuous casters that feed melted steel to a bar mill, a
structural mill and a large beam mill. Finished (rolled) products produced
include beams up to twenty-four inches wide, merchant bar-quality rounds,
special bar quality rounds, reinforcing bar and channels. The Virginia facility
has one electric arc furnace and in-line processing units consisting of two near
net shape casters and sophisticated rolling mill. Finished products produced
include beams up to thirty-six inches wide, sheet piling, H-piling and channels.
The rated annual capacities of the operating facilities are as follows:
<TABLE>
<CAPTION>
Rated Annual Productive Approximate
Capacity (Tons) Facility Square Footage
----------------------- -----------------------
<S> <C> <C>
Texas
Melting 1,800,000 265,000
Rolling 1,900,000 560,000
Virginia
Melting 1,300,000 135,000
Rolling 1,200,000 500,000
</TABLE>
The bar and structural mills produced approximately 1.7 million tons of finished
products in 2000, 1.3 million tons in 1999 and 1.6 million tons in 1998.
Recycled steel is the primary raw material, with shredded steel representing
approximately 40% percent of the raw material mix. A major portion of the
shredded steel requirements is produced by shredder operations at each of the
steel facilities. The shredded material is primarily composed of crushed auto
bodies purchased on the open market. Another grade of recycled steel, #1 Heavy,
representing approximately 30 percent of the raw material requirements is also
purchased on the open market. The purchase price of recycled steel is subject to
market forces largely beyond the Company's control. The supply of recycled steel
is expected to be adequate to meet future requirements.
The steel mills consume large amounts of electricity and natural gas.
Electricity is currently obtained from local electric utilities under
interruptible supply contracts with price adjustments that reflect increases or
decreases in the utility's fuel costs. Natural gas is obtained from local gas
utilities under supply contracts. The Company believes that adequate supplies of
both electricity and natural gas are readily available.
The Company's steel products are marketed throughout the United States and to a
limited extent in Canada and Mexico. Sales are primarily to steel service
centers and steel fabricators for use in the construction industry, as well as,
to cold finishers, forgers and original equipment manufacturers for use in the
railroad, defense, automotive, mobile home and energy industries. The Company
does not place heavy reliance on franchises, licenses or concessions. None of
TXI's customers accounted for more than ten percent of the Steel segment's sales
in 2000. Sales to affiliates are minimal. Orders are generally filled within 45
days and are cancelable. Delivery of finished products is accomplished by
common-carrier, customer-owned trucks, rail or barge.
The Company competes with steel producers, including foreign producers, on the
basis of price, quality and service. Certain of the foreign and domestic
competitors, including both large integrated steel producers and mini-mills,
have substantially greater assets and larger sales organizations than TXI.
Intense sales competition exists for substantially all of the Steel segment's
products.
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<PAGE> 7
RISKS RELATING TO THE COMPANY
Competition
All of the markets in which the Company participates are highly competitive. The
Company competes in each of its cement, aggregate and concrete products markets
with several other domestic suppliers of these products as well as with
importers of foreign cement. The Company competes in its steel markets with
national and international producers of steel products. Some of the Company's
competitors are larger, have greater financial resources and have less financial
leverage than the Company. The Company competes on the basis of, among other
things, competitive prices, prompt availability, customer service and quality
products.
Sensitivity to Economic Cycles; Seasonality and Weather
A significant percentage of the Company's sales of both CAC and Steel products
is attributable to the level of construction activity, which is affected by such
cyclical factors as general economic conditions, interest rates, inflation,
consumer spending habits and employment. The Company's CAC operating profit is
generally lower in its fiscal quarter ended February 28 as compared to the other
three fiscal quarters due to the impact of winter weather on construction
activity. Extended periods of inclement weather can adversely impact
construction activity at other times of the year as well. Steel results are also
affected by the Company's shut-downs scheduled every twelve to eighteen months
to refurbish its steel production facilities.
Growth Strategy
A significant element of the Company's operating strategy is to pursue strategic
acquisitions that either expand or complement the Company's products or markets
or to build new or expand existing production facilities. There can be no
assurance that the Company will be able to identify and make acquisitions on
acceptable terms, that the Company will be able to obtain the permits necessary
to build new or expand existing production facilities, that the Company will be
able to obtain financing for such acquisitions or expansions on acceptable terms
or that the Company will be able successfully to integrate such acquisitions
into existing operations.
Availability and Pricing of Raw Materials
The Company is dependent upon purchased scrap steel as a raw material and upon
energy sources, including electricity and fossil fuels. Accordingly, the
Company's results of operations and financial condition have in the past been,
and may again in the future be adversely affected by increases in raw material
costs or energy costs, or their lack of availability.
Status of Certain Tariffs
A group of domestic cement producers, including the Company, filed antidumping
petitions which have resulted in the imposition of significant antidumping duty
cash deposits on grey portland cement and clinker imported from Mexico and
Japan. In addition, the U.S. Department of Commerce has signed agreements with
the Venezuelan Government and Venezuelan cement producers, which are designed to
eliminate the dumping and illegal subsidization of grey portland cement and
clinker from Venezuela. On an annual basis, the antidumping duties are subject
to review by the Department of Commerce to determine whether the current
antidumping duty deposit rates should be adjusted upward or downward.
In 1995, the Antidumping Code of General Agreement on Tariffs and Trade was
substantially altered pursuant to the Uruguay Round of multilateral trade
negotiations. U.S. legislation approving and implementing the Uruguay Round
agreements requires the Department of Commerce and the U.S. International Trade
Commission ("ITC") to conduct "sunset" reviews of all outstanding antidumping
and countervailing duty orders and suspension agreements, including the
antidumping orders against grey portland cement and clinker from Mexico and
Japan and the suspension agreements on grey portland cement and clinker from
Venezuela, to determine whether they should be terminated or remain in effect.
In 1999, the Department of Commerce and the ITC began conducting "sunset"
reviews of the antidumping orders and suspension agreements to determine whether
they should be revoked or remain in effect for another five years. A substantial
reduction or elimination of the existing antidumping duties could adversely
affect the Company's results of operations. The exact net impact, if any, on the
Company is impossible to determine at this time.
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<PAGE> 8
In July 1999 complaints were filed with the ITC and the U.S. Department of
Commerce by the Company, Northwestern Steel & Wire Co., Nucor-Yamato Steel Co.
and the United Steelworkers of America seeking to impose antidumping and
countervailing duties against imports of structural steel beams from Germany,
Japan, South Korea and Spain. In June and July 2000, the ITC made respective
determinations that an industry in the United States is materially injured or
threatened with material injury by reason of such imports from Japan and Korea
that the Department of Commerce has determined are subsidized and sold in the
United States at less than fair value. As a result of the ITC's affirmative
determinations, the Department of Commerce will direct the U.S. Customs Service
to impose countervailing and antidumping duties on imports of certain structural
steel beams from these two countries. However, it is possible that imports of
structural steel beams from other countries will increase significantly. In 1999
the quantity of such imports from Japan was 200,642 short tons at a value of
$56,095,000 and from Korea was 252,196 short tons at a value of $67,412,000.
Impact of Environmental Laws
The operations of the Company and its subsidiaries are subject to various
federal and state environmental laws and regulations ("Environmental Laws" or
"Laws"). Under these Laws, the U.S. Environmental Protection Agency ("EPA") and
agencies of state government have the authority to promulgate regulations which
could result in substantial expenditures for pollution control and solid waste
treatment and disposal. Three major areas regulated by these authorities are air
quality, waste management and water quality.
Emissions sources at the Company's facilities are regulated by a combination of
permit limitations and emission standards of statewide application, and the
Company believes that it is in substantial compliance with its permit
limitations and laws and regulations applicable to its existing facilities.
There can be no assurance, however, that future changes in permit limitations
and emission standards will not adversely affect the Company's ability to build
new or expand existing production facilities.
Many of the raw materials, products and by-products associated with the
operation of any industrial facility, including those for the production of
steel, cement or concrete products, contain chemical elements or compounds that
can be designated as hazardous substances. Such raw materials, products and
by-products may also exhibit characteristics that result in their being
classified as a hazardous substance or waste. Some examples are the metals
present in cement kiln dust ("CKD"), the ignitability of the fuels derived from
solid waste which the Company uses as a primary or supplementary fuel substitute
for nonrenewable coal and natural gas to fire its cement kilns and the
electric-arc furnace dust ("EAF dust") generated by the Company's steel
facilities.
Currently, CKD is exempt from hazardous waste management standards under the
Resource Conservation and Recovery Act ("RCRA") if certain tests are satisfied.
TXI has demonstrated that the CKD it generates satisfies these tests. However,
the EPA plans to apply site-specific waste-management standards to CKD under the
Clean Air Act and RCRA to assure the environment is protected. The Company has
established operating practices and is implementing waste management programs
which it believes will comply with these anticipated standards, but there can be
no assurances that such practices and programs will continue to comply in the
future.
The Company's utilization of hazardous materials such as gasoline, acids,
solvents and chemicals as well as the materials that have been designated or
characterized as hazardous waste by the EPA which the Company uses for energy
recovery, has necessitated that the Company familiarize its work force with the
more exacting requirements of applicable Environmental Laws and regulations with
respect to human health and the environment related to these activities. The
failure to observe these exacting requirements could jeopardize the Company's
hazardous waste management permits and, under certain circumstances, expose the
Company to significant liabilities and costs of cleaning up releases of
hazardous substances into the environment or claims by employees or others
alleging exposure to hazardous substances.
The Company's steel facilities generate, in the same manner as other like steel
plants in the industry, EAF dust that contains lead, chromium and cadmium. The
EPA has listed this EAF dust, which is collected in baghouses, as hazardous
waste. The Company has contracts with reclamation facilities in the United
States and Mexico pursuant to which such facilities receive the EAF dust
generated by the Company and recover the metals from the dust for reuse, thus
rendering the dust non-hazardous. In addition, the Company is continually
investigating alternative reclamation technologies and has implemented processes
for diminishing the amount of EAF dust generated.
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<PAGE> 9
The Company intends to comply with all legal requirements regarding the
environment, but since many of these requirements are subjective and therefore
not quantifiable, presently not determinable, or are likely to be affected by
future legislation or rule making by government agencies, it is not possible to
accurately predict the aggregate future costs of compliance and their effect on
the Company's operations, future net income or financial condition.
Notwithstanding such compliance, if damage to persons or property or
contamination of the environment has been or is caused by the conduct of the
Company's business or hazardous substances or wastes used in, generated or
disposed of by the Company, the Company may be liable for such damages and be
required to pay the cost of investigation and remediation of such contamination.
The amount of such liability could be material and there can be no assurance
that the Company will not incur material liability in connection with possible
claims related to the Company's operations and properties under Environmental
Laws.
OTHER ITEMS
TXI has approximately 4,500 employees: 2,700 employed in CAC operations, 1,600
employed in Steel operations and the balance employed in corporate resources.
The Company is involved in the development of its surplus real estate and real
estate acquired for development of high quality industrial, office and multi-use
parks in the metropolitan areas of Dallas/Fort Worth and Houston, Texas and
Richmond, Virginia.
ITEM 2. PROPERTIES
The information required by this item is included in the answer to Item 1.
ITEM 3. LEGAL PROCEEDINGS
The information required by this item is included in the section of the Notes to
Consolidated Financial Statements entitled "Legal Proceedings and Contingent
Liabilities" presented in Part II, Item 8 on page 29 and incorporated herein by
reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Information on executive officers of the Registrant is presented below:
<TABLE>
<CAPTION>
Positions with Registrant, Other
Name Age Employment During Last Five (5) Years
---- --- -------------------------------------
<S> <C> <C>
Robert D. Rogers 64 President and Chief Executive Officer and Director
Richard M. Fowler 57 Executive Vice President-Finance (since July 2000) and
Chief Financial Officer
Vice President-Finance (until July 2000)
Melvin G. Brekhus 51 Executive Vice President and Chief Operating Officer,
Cement, Aggregate and Concrete (since 1998)
Vice President-Cement (1996 to 1998)
Tommy A. Valenta 51 Executive Vice President and Chief Operating Officer,
Steel (since 1998)
Vice President-Concrete (1996 to 1998)
Barry M. Bone 42 Vice President-Real Estate
President, Brookhollow Corporation
William J. Durbin 55 Vice President-Human Resources (since 2000)
Vice President Human Resources and Administration,
USI Bath & Plumbing Products (until 2000)
Carlos E. Fonts 60 Vice President-Development
Robert C. Moore 66 Vice President-General Counsel and Secretary
</TABLE>
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The shares of common stock, $1 par value, of the Registrant are traded on the
New York Stock Exchange (ticker symbol TXI). At May 31, 2000, the approximate
number of shareholders of common stock of the Registrant was 3,326. Common stock
market prices, dividends and certain other items are presented in the Notes to
Consolidated Financial Statements entitled "Quarterly Financial Information" on
page 31, incorporated herein by reference. The restriction on the payment of
dividends described in the Notes to Consolidated Financial Statements entitled
"Long-term Debt" on pages 24 and 25 is incorporated herein by reference. At the
January 1997 Board of Directors' meeting, the Directors voted to declare a
two-for-one stock split and increase the quarterly cash dividend from five cents
per share to seven and one-half cents per share.
ITEM 6. SELECTED FINANCIAL DATA
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
$ In thousands except per share 2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net sales $1,306,407 $1,126,800 $1,196,275 $ 973,824 $ 967,449
Operating profit 184,955 178,260 195,251 154,535 165,904
Net income 69,829 88,743 102,130 75,474 79,954
Return on average common equity 10.6% 14.9% 20.5% 17.3% 21.0%
PER SHARE INFORMATION
Net income (diluted) $ 3.15 $ 3.92 $ 4.69 $ 3.42 $ 3.53
Cash dividends .30 .30 .30 .25 .20
Book value 32.30 29.28 25.36 20.43 18.52
FOR THE YEAR
Cash from operations $ 155,565 $ 242,225* $ 215,020 $ 109,899 $ 127,463
Capital expenditures 317,096 475,464 440,781 85,188 79,300
YEAR END POSITION
Total assets $1,815,680 $1,531,053 $1,185,831 $ 847,923 $ 801,063
Net working capital 203,739 162,411 226,968 242,994 219,345
Long-term debt 623,284 456,365 405,749 176,056 160,209
Preferred securities 200,000 200,000 -- -- --
Shareholders' equity 698,026 632,550 553,326 452,811 420,022
Long-term debt to total
capitalization 41.0% 35.4% 42.3% 28.0% 27.6%
OTHER INFORMATION
Diluted average common shares
outstanding (in 000's) 24,502 24,492 21,819 22,163 22,682
Number of common shareholders 3,326 3,546 3,630 3,796 4,017
Number of employees 4,500 4,200 4,100 3,400 3,000
Wages, salaries and employee
benefits $ 216,970 $ 189,722 $ 168,530 $ 145,953 $ 141,233
Common stock prices
(high-low) 43 - 28 59 - 19 68 - 23 34 - 20 34 - 17
</TABLE>
* Includes $100 million from sale of receivables.
-9-
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is a leading supplier of construction materials through two business
segments: 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, piling products,
specialty bar products, merchant bar-quality rounds, reinforcing bar and
channels.
The Company's CAC facilities are concentrated primarily in Texas, Louisiana and
California with several products marketed throughout the United States. The
Company owns long-term reserves of limestone, the primary raw material for the
production of cement. TXI's expansion of its Midlothian, Texas cement plant is
expected to be completed during the fall of 2000, increasing the plant's
production from 1.3 to 2.8 million tons per year.
The Company's steel facilities follow a market mill concept which entails
producing a wide variety of products utilizing recycled steel obtained from
crushed automobiles and other sources as its principal raw material. TXI strives
to be a low-cost supplier and is able to modify its product mix to recognize
changing market conditions or customer requirements. Steel products are sold
principally to steel service centers, fabricators, cold finishers, forgers and
original equipment manufacturers. The Company distributes primarily to markets
in North America. TXI's structural steel facility in Virginia began operations
during the August 1999 quarter, and after the start-up phase will expand TXI's
steel capacity by approximately two-thirds.
Both the CAC and Steel businesses require large amounts of capital investment,
energy, labor and maintenance.
Corporate resources include administration, financial, legal, environmental,
personnel and real estate activities which are not allocated to operations and
are excluded from operating profit.
RESULTS OF OPERATIONS
Net Sales
Consolidated 2000 net sales increased $179.6 million from 1999 to $1,306.4
million.
CAC net sales, at $679.8 million, were $35.4 million above the prior year.
Strong construction activity continues to sustain demand for building materials
in the Company's CAC markets. Total cement sales increased $17.2 million on 7%
higher shipments. Average trade prices were down slightly from the prior year.
However, average trade prices in the May quarter were 7% below the prior year
quarter due primarily to the impact of imports on supply. Ready-mix sales
increased $7.7 million on 3% higher average prices. Aggregate sales increased
$8.7 million on 9% higher shipments with average trade prices somewhat lower.
Steel sales at $626.6 million were $144.2 million above the prior year.
Shipments increased 36% with realized prices 4% below the prior year. There
continues to be strong demand for structural products in North America. Realized
structural steel prices have continued to recover throughout the year. In the
May quarter, prices increased 5% over the February quarter to levels 25% above
the May 1999 quarter. Bar mill sales increased 6% for the year on 12% higher
shipments with average prices 5% lower.
-10-
<PAGE> 13
RESULTS OF OPERATIONS-Continued
Consolidated 1999 net sales declined $69.5 million from 1998 to $1,126.8
million.
CAC net sales at $644.4 million, were $153.8 million above the prior year. Total
cement sales increased $95.3 million due primarily to the Company's expansion
into the California cement market through the acquisition of Riverside Cement
Company. Sales from the California plants during their first full year of
operation contributed $76.2 million of the $95.3 million increase in cement
sales. Sales from the Company's Texas plants were up $19.1 million on 12% higher
average prices. Continued strong market conditions in Texas resulted in
increased ready-mix and stone, sand and gravel sales. Ready-mix sales increased
27% on 12% higher average prices and 13% higher volume. Stone, sand and gravel
pricing increased 9% with shipments up 6%.
Steel sales at $482.4 million were down 32% from the prior year. Shipments
declined 25%. Strong nonresidential building activity has continued to sustain
demand for structural products in North America; however, an unprecedented
increase in structural steel imports has resulted in a very competitive market.
Shipments increased 29% in the May quarter over the February quarter, reaching
May 1998 levels but at 24% lower prices. As the Company competes to return its
market share to previous levels, prices for structural products could decline
further. The major stage of the bar mill upgrade project was completed during
the November quarter resulting in lower bar mill production and shipments as the
mill was brought back on-line.
BUSINESS SEGMENTS
<TABLE>
<CAPTION>
Year ended May 31,
-------------------------------
In thousands 2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
TOTAL SALES
Cement $ 311,981 $ 294,808 $ 199,462
Ready-mix 263,375 255,626 202,044
Stone, sand & gravel 106,318 97,656 85,099
Structural mills 499,967 365,291 527,704
Bar mill 110,679 104,286 169,001
UNITS SHIPPED
Cement (tons) 4,135 3,852 2,945
Ready-mix (cubic yards) 4,197 4,203 3,724
Stone, sand & gravel (tons) 19,653 18,010 17,058
Structural mills (tons) 1,470 1,030 1,294
Bar mill (tons) 331 296 474
NET SALES
Cement $ 234,790 $ 215,345 $ 135,056
Ready-mix 262,962 254,980 200,627
Stone, sand & gravel 74,061 69,161 58,557
Other products 107,954 104,871 96,346
---------- ---------- ----------
TOTAL CAC 679,767 644,357 490,586
Structural mills 499,967 365,291 527,704
Bar mill 110,679 104,286 169,001
Other 15,994 12,866 8,984
---------- ---------- ----------
TOTAL STEEL 626,640 482,443 705,689
---------- ---------- ----------
TOTAL NET SALES $1,306,407 $1,126,800 $1,196,275
========== ========== ==========
</TABLE>
-11-
<PAGE> 14
BUSINESS SEGMENTS-Continued
<TABLE>
<CAPTION>
Year ended May 31,
-----------------------------------
In thousands 2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
CAC OPERATIONS
Gross profit $ 248,645 $ 236,505 $ 164,876
Less: Depreciation, depletion &
amortization 39,139 36,633 27,767
Selling, general & administrative 43,286 41,540 31,882
Other income (3,497) (6,978) (2,499)
----------- ----------- -----------
OPERATING PROFIT 169,717 165,310 107,726
STEEL OPERATIONS
Gross profit 85,232 69,599 151,456
Less: Depreciation & amortization 57,033 36,468 33,642
Selling, general & administrative 25,399 26,381 36,250
Other income (12,438) (6,200) (5,961)
----------- ----------- -----------
OPERATING PROFIT 15,238 12,950 87,525
----------- ----------- -----------
TOTAL OPERATING PROFIT 184,955 178,260 195,251
CORPORATE RESOURCES
Other income 3,565 9,535 8,821
Less: Depreciation & amortization 1,092 946 870
Selling, general & administrative 39,711 31,442 23,152
----------- ----------- -----------
(37,238) (22,853) (15,201)
INTEREST EXPENSE (32,743) (11,310) (20,460)
----------- ----------- -----------
INCOME BEFORE TAXES &
OTHER ITEMS $ 114,974 $ 144,097 $ 159,590
=========== =========== ===========
CAPITAL EXPENDITURES
CAC $ 228,772 $ 43,531 $ 191,503
Steel 82,030 423,880 247,893
Corporate resources 6,294 8,053 1,385
----------- ----------- -----------
$ 317,096 $ 475,464 $ 440,781
=========== =========== ===========
IDENTIFIABLE ASSETS
CAC $ 637,485 $ 405,694 $ 453,244
Steel 1,063,499 1,017,937 640,431
Corporate resources 114,696 107,422 92,156
----------- ----------- -----------
$ 1,815,680 $ 1,531,053 $ 1,185,831
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
-12-
<PAGE> 15
Operating Costs
Consolidated cost of products sold including depreciation, depletion and
amortization was $1,064.5 million, an increase of $175.0 million from 1999. CAC
costs were $466.4 million, an increase of $25.8 million as a result of increased
shipments and higher aggregate production and ready-mix distribution costs.
Steel costs were $598.4 million, an increase of $149.2 million on increased
shipments, higher scrap prices and higher unit production costs at the Virginia
plant because of start-up inefficiencies.
CAC selling, general and administrative expense including depreciation and
amortization at $47.5 million increased $1.7 million due primarily to higher
administrative, insurance and bad debt expenses offset somewhat by lower
incentive compensation. Steel expenses at $25.4 million decreased from the prior
year $1.1 million due in part to lower incentive compensation partially offset
by Virginia administrative expenses.
Operating Profit
Operating profit at $185.0 million increased 4% from 1999. CAC profits were $4.4
million higher than 1999. Increased shipments were offset by lower average
cement prices. Steel operating profit increased $2.3 million on increased
shipments. Although structural beam prices have continued to recover over the
past nine months, the average price for the year was below that of 1999. Higher
costs of manufacturing due to the start-up of the Virginia plant has adversely
impacted operating profits and could continue to affect near term results. Steel
profits in both the current and prior year include $6.3 million in pre-tax
income from the Company's litigation against certain graphite electrode
suppliers.
Corporate Resources
Selling, general and administrative expenses including depreciation and
amortization at $40.8 million increased $8.4 million due in part to the costs of
the Company's March 1999 agreement to sell receivables, and higher insurance and
retirement expense partially offset by lower incentive accruals. Other income
decreased $6.0 million due to lower interest and real estate income.
Interest Expense
Interest expense at $32.7 million was $21.4 million higher than 1999 due to a
$10.9 million increase in interest incurred as a result of higher outstanding
debt and a $10.5 million decrease in interest capitalized.
Income Taxes
The Company's 2000 effective tax rate was 32.8% compared to 33.4% in 1999. The
primary reason that the tax rate differs from the 35% statutory corporate rate
is due to goodwill expense which is not tax deductible, percentage depletion
which is tax deductible and state income tax expense.
Dividends on Preferred Securities - Net of Tax
Dividends on preferred securities of subsidiary net of tax benefit amounted to
$7.2 million in 2000 compared to $7.1 million in 1999.
-13-
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
Improvement in both CAC and Steel operating profit was offset by increased
interest and corporate expense that reduced net income $18.9 million from the
prior year. The $317.1 million in capital expenditures were funded by cash
provided by operations and increased long-term debt. The long-term debt to total
capitalization ratio rose to 41%. The Company has an agreement to sell, on a
revolving basis, an interest in a defined pool of trade accounts receivable of
up to $125 million. The agreement is subject to annual renewal. The maximum
amount outstanding varies based upon the level of eligible receivables. At May
31, 2000, an $85 million interest was sold under this agreement. The Company has
a $450 million revolving credit facility that expires in March 2004. At May 31,
2000, $240.0 million was outstanding under the credit facility and an additional
$111.5 million had been utilized to support letters of credit.
Net cash provided by operations was $155.6 million, compared to $242.2 million
during 1999. Sales of receivables that provided $100 million in operating cash
flow in 1999 were reduced $15 million in 2000. Changes in working capital items,
increased depreciation and deferred taxes offset by lower net income and real
estate sales increased operating cash flow $28.3 million over 1999. Receivables
increased $24.8 million due primarily to increased shipments. CAC inventories
grew $16.8 million. Accounts payable and accrued expenses increased $28.6
million in part due to increased accounts payable and higher interest and income
tax accruals. Deferred taxes include a $7.6 million alternative minimum tax
credit carryforward which is available for offset against future regular income
tax. In 1999, receivables declined $10.1 million and inventories grew $51.8
million primarily due to the lower steel shipments and realized prices.
Net cash used by investing activities was $321.6 million compared to $463.5
million during 1999, consisting principally of capital expenditure items.
Historically, capital expenditures have been for normal replacement and
technological upgrades of existing equipment and expansion of the Company's
operations. During 2000 expenditures for these activities were $50.8 million,
down $45.5 million from 1999. The fiscal year 2001 capital expenditure budget is
estimated to be in the range of $120 to $150 million. Capital expenditures for
plant expansions included $192.4 million incurred for the expansion of the
Company's Midlothian, Texas cement plant. Completion is expected by the fall of
2000. The project will expand the production of the plant from 1.3 to 2.8
million tons per year and require a capital commitment of approximately $250
million. In addition, $73.9 million was incurred in completing the Company's
Virginia steel facility. Production at the facility began in August 1999.
Net cash provided by financing activities was $155.4 million, compared to $222.2
million during 1999. During the current year, the Company issued variable-rate
industrial development bonds in the amount of $25 million. The proceeds were
used to reimburse construction costs incurred at its Virginia steel plant. The
Company also has available $20.2 million from its May 1999 bond issue to
reimburse future construction costs at its Midlothian cement plant. 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 to
the public. Net proceeds amounted to $193.6 million. The Company's quarterly
cash dividend at $.075 per common share remained unchanged from the prior year.
The Company generally finances its major capital expansion projects with cash
from operations and long-term borrowing. Maintenance capital expenditures and
working capital are funded by cash from operations. The Company expects cash
from operations including the sale of additional receivables, proceeds from its
industrial development bonds and borrowings under its revolving credit facility
to be sufficient to provide funds for capital expenditure commitments, scheduled
debt repayments and working capital needs.
-14-
<PAGE> 17
OTHER ITEMS
Litigation
On November 25, 1998, Chaparral Steel Company ("Chaparral"), 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 and SGL
Carbon Corp. ("SGL"); and UCAR Carbon Company, Inc. and UCAR International, Inc.
("UCAR") (collectively "Defendants") asserting causes of action for illegal
restraints of trade in the sale of graphite electrodes. In December 1999, Nippon
Carbon Co., Ltd.; SEC Corporation; Tokai Carbon U.S.A., Inc.; Tokai Carbon
Company, Ltd.; VAW Aluminium Aktiengesellschaft; and VAW Carbon GMBH were added
by Chaparral to the action. SDC and its affiliates and UCAR and its affiliates
have settled with Chaparral and have been removed from the action. In related
criminal actions, two of the Defendants have pled 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 discovery stages, the Company
believes that it should, subject to inherent uncertainties of litigation,
prevail in its claims against the remaining Defendants.
Environmental Matters
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, however, from
time to time the Company receives claims from federal and state environmental
regulatory agencies and entities asserting that the Company is or may be liable
for environment cleanup costs and related damages. Based on its experience and
the information currently available to it, the Company believes that such claims
will not have a material impact on its financial condition or results of
operations. Despite the Company's compliance and experience, it is possible that
the Company could be held liable for future charges which might be material but
are not currently known or estimable. In addition, changes in federal or state
laws, regulations or requirements or discovery of currently unknown conditions
could require additional expenditures by the Company.
Market Risk
The Company does not enter into derivatives or other financial instruments for
trading or speculative purposes. Because of the short duration of the Company's
investments, changes in market interest rates would not have a significant
impact on their fair value. The current fair value of the Company's long-term
debt, including current maturities, does not exceed its carrying value. Market
risk, when estimated as the potential increase in fair value resulting from a
hypothetical 10% decrease in the Company's weighted average long-term borrowing
rate, would not have a significant impact on the carrying value of long-term
debt.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
Certain statements contained in this annual report are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to risks, uncertainties and other factors,
which could cause actual results to differ materially from future results
expressed or implied by such forward-looking statements. Potential risks and
uncertainties include, but are not limited to, the impact of competitive
pressures and changing economic and financial conditions on the Company's
business, construction activity in the Company's markets, abnormal periods of
inclement weather, changes in the cost of raw materials, fuel, and energy and
the impact of environmental laws and other regulations (see Part I, Item 1 under
the caption "Risks Relating to the Company" on pages 5 through 7).
-15-
<PAGE> 18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is included in Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors...................................................................................17
Consolidated Balance Sheets - May 31, 2000 and 1999..............................................................18
Consolidated Statements of Income - Years ended May 31, 2000, 1999 and 1998......................................19
Consolidated Statements of Cash Flows - Years ended May 31, 2000, 1999 and 1998..................................20
Consolidated Statements of Shareholders' Equity - Years ended May 31, 2000, 1999 and 1998........................21
Notes to Consolidated Financial Statements.......................................................................22
</TABLE>
-16-
<PAGE> 19
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Texas Industries, Inc.
We have audited the accompanying consolidated balance sheets of Texas
Industries, Inc. and subsidiaries (the Company) as of May 31, 2000 and 1999, and
the related consolidated statements of income, cash flows, and changes in
shareholders' equity for each of the three years in the period ended May 31,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance that the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Texas
Industries, Inc. and subsidiaries at May 31, 2000 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended May 31, 2000, in conformity with accounting principles generally
accepted in the United States.
Ernst & Young LLP
Dallas, Texas
July 12, 2000
-17-
<PAGE> 20
CONSOLIDATED BALANCE SHEETS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
May 31,
--------------------------
In thousands 2000 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 6,988 $ 17,652
Notes and accounts receivable 79,180 43,119
Inventories 246,910 230,858
Deferred taxes and prepaid expenses 38,926 18,776
----------- -----------
TOTAL CURRENT ASSETS 372,004 310,405
OTHER ASSETS
Real estate and other investments 18,572 19,925
Goodwill and other intangibles 152,309 155,349
Other 43,712 39,150
----------- -----------
214,593 214,424
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 190,671 148,184
Buildings 90,160 75,110
Machinery and equipment 1,470,369 952,657
Construction in progress 256,594 525,439
----------- -----------
2,007,794 1,701,390
Less allowances for depreciation 778,711 695,166
----------- -----------
1,229,083 1,006,224
----------- -----------
$ 1,815,680 $ 1,531,053
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 94,077 $ 82,790
Accrued interest, wages and other items 64,815 56,036
Current portion of long-term debt 9,373 9,168
----------- -----------
TOTAL CURRENT LIABILITIES 168,265 147,994
LONG-TERM DEBT 623,284 456,365
DEFERRED FEDERAL INCOME TAXES AND OTHER CREDITS 126,105 94,144
COMPANY-OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY HOLDING
SOLELY COMPANY CONVERTIBLE DEBENTURES 200,000 200,000
SHAREHOLDERS' EQUITY
Common stock, $1 par value 25,067 25,067
Additional paid-in capital 258,325 257,773
Retained earnings 504,161 440,645
Cost of common stock in treasury (89,527) (90,935)
----------- -----------
698,026 632,550
----------- -----------
$ 1,815,680 $ 1,531,053
=========== ===========
</TABLE>
See notes to consolidated financial statements
-18-
<PAGE> 21
CONSOLIDATED STATEMENTS OF INCOME
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended May 31,
---------------------------------------------------
In thousands except per share 2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $ 1,306,407 $ 1,126,800 $ 1,196,275
COSTS AND EXPENSES (INCOME)
Cost of products sold 1,064,477 889,502 938,418
Selling, general and administrative 113,713 104,604 95,088
Interest 32,743 11,310 20,460
Other income (19,500) (22,713) (17,281)
----------- ----------- -----------
1,191,433 982,703 1,036,685
----------- ----------- -----------
INCOME BEFORE THE FOLLOWING ITEMS 114,974 144,097 159,590
Income taxes 37,995 48,283 53,060
----------- ----------- -----------
76,979 95,814 106,530
Dividends on preferred securities - net of tax (7,150) (7,071) --
Minority interest in Chaparral -- -- (4,400)
----------- ----------- -----------
NET INCOME $ 69,829 $ 88,743 $ 102,130
=========== =========== ===========
BASIC
Average shares 21,172 21,265 21,110
Earnings per share $ 3.31 $ 4.18 $ 4.85
=========== =========== ===========
DILUTED
Average shares 24,502 24,492 21,819
Earnings per share $ 3.15 $ 3.92 $ 4.69
=========== =========== ===========
Cash dividends $ .30 $ .30 $ .30
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
-19-
<PAGE> 22
CONSOLIDATED STATEMENTS OF CASH FLOWS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended May 31,
---------------------------------------------
In thousands 2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 69,829 $ 88,743 $ 102,130
Loss (gain) on disposal of assets (2,497) (2,807) 503
Non-cash items
Depreciation, depletion and amortization 97,264 74,047 62,279
Deferred taxes 15,372 4,960 (1,892)
Undistributed minority interest -- -- 4,177
Other - net 6,311 5,868 7,274
Changes in operating assets and liabilities
Receivables sold (15,000) 100,000 --
Notes and accounts receivable (24,844) 10,085 (7,666)
Inventories and prepaid expenses (20,496) (47,978) 14,472
Accounts payable and accrued liabilities 28,598 3,739 31,896
Real estate and investments 1,028 5,568 1,847
--------- --------- ---------
Net cash provided by operations 155,565 242,225 215,020
INVESTING ACTIVITIES
Capital expenditures - expansions (266,346) (379,240) (92,681)
Capital expenditures - other (50,750) (96,224) (160,561)
Purchase of Riverside Cement Company -- -- (115,364)
Purchase of Chaparral minority interest -- -- (72,175)
Proceeds from disposal of assets 5,351 13,372 3,687
Other - net (9,842) (1,436) (2,626)
--------- --------- ---------
Net cash used by investing (321,587) (463,528) (439,720)
FINANCING ACTIVITIES
Proceeds of long-term borrowing 296,826 313,186 338,836
Net proceeds from issuance of subsidiary preferred securities -- 193,504 --
Debt retirements (129,714) (266,792) (109,225)
Purchase of treasury shares (143) (6,086) (1,098)
Common dividends paid (6,313) (6,349) (6,307)
Other - net (5,298) (5,226) (622)
--------- --------- ---------
Net cash provided by financing 155,358 222,237 221,584
--------- --------- ---------
Increase (decrease) in cash (10,664) 934 (3,116)
Cash at beginning of year 17,652 16,718 19,834
--------- --------- ---------
Cash at end of year $ 6,988 $ 17,652 $ 16,718
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
-20-
<PAGE> 23
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Common
Stock Additional Treasury Total
In thousands $1 Par Paid-in Retained Common Shareholders'
Value Capital Earnings Stock Equity
--------- ---------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
May 31, 1997 $ 25,067 $ 255,149 $ 262,774 $ (90,179) $ 452,811
Net income 102,130 102,130
Common dividends paid - $.30 a share (6,307) (6,307)
Treasury shares issued for bonuses and options -
312,075 shares 586 (290) 5,494 5,790
Treasury shares purchased - 19,737 shares (1,098) (1,098)
--------- --------- --------- --------- ---------
May 31, 1998 25,067 255,735 358,307 (85,783) 553,326
Net income 88,743 88,743
Common dividends paid - $.30 a share (6,349) (6,349)
Treasury shares issued for bonuses and options -
49,814 shares 2,038 (56) 934 2,916
Treasury shares purchased - 247,261 shares (6,086) (6,086)
--------- --------- --------- --------- ---------
May 31, 1999 25,067 257,773 440,645 (90,935) 632,550
Net income 69,829 69,829
Common dividends paid - $.30 a share (6,313) (6,313)
Treasury shares issued for bonuses and options -
82,695 shares 552 1,551 2,103
Treasury shares purchased - 3,913 shares (143) (143)
--------- --------- --------- --------- ---------
May 31, 2000 $ 25,067 $ 258,325 $ 504,161 $ (89,527) $ 698,026
========= ========= ========= ========= =========
</TABLE>
At May 31, 2000, Common Stock and Additional Paid-in Capital include $127.8
million of accumulated transfers from Retained Earnings in connection with stock
dividends.
See notes to consolidated financial statements.
-21-
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, piling
products, specialty bar products, merchant bar-quality rounds, reinforcing bar
and channels for markets in North America.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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.
Fair Value of Financial Instruments. The estimated fair value of each class of
financial instrument as of May 31, 2000 approximates its carrying value except
for long-term debt having fixed interest rates and mandatorily redeemable
preferred securities of subsidiary. The fair value of long-term debt at May 31,
2000, estimated by applying discounted cash flow analysis based on interest
rates currently available to the Company for such debt with similar terms and
remaining maturities, is approximately $592.5 million compared to the carrying
amount of $632.7 million. The fair value of mandatorily redeemable preferred
securities of subsidiary at May 31, 2000, estimated based on NYSE quoted market
prices, is approximately $121.8 million compared to the carrying amount of
$200.0 million.
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 $33.9 million at May 31, 2000 and $28.1 million at
May 31, 1999. Settlement of appraisal rights relating to the acquisition of the
minority interest in Chaparral resulted in $2.0 million of additional goodwill
in 2000. Goodwill resulting from the acquisitions of Chaparral Steel Company and
Riverside Cement Company, totaling $146.5 million at May 31, 2000 and $149.0
million at May 31, 1999 (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.
Debt Issuance Cost. Debt issuance costs associated with various debt issues are
being amortized over the terms of the related debt.
Other Credits. Other credits of $31.5 million at May 31, 2000 compared to $31.2
million at the prior year-end are composed primarily of liabilities related to
the Company's retirement plans and deferred compensation agreements.
Net Sales. Sales are recognized when products are shipped.
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.
-22-
<PAGE> 25
Earnings Per Share ("EPS"). 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 preferred securities, stock options and awards. Stock options to
purchase approximately 541,000 shares in 2000 and 607,000 shares in 1999 were
not included in the computation of diluted EPS because the effect would have
been antidilutive.
Basic and Diluted EPS are calculated as follows:
<TABLE>
<CAPTION>
In thousands except per share 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Earnings:
Net income $ 69,829 $ 88,743 $102,130
Contingent price amortization 233 233 233
-------- -------- --------
Basic earnings 70,062 88,976 102,363
Dividends on preferred securities-net of tax 7,150 7,071 --
-------- -------- --------
Diluted earnings $ 77,212 $ 96,047 $102,363
======== ======== ========
Shares:
Weighted-average shares outstanding 21,037 21,145 21,010
Contingently issuable shares 135 120 100
-------- -------- --------
Basic weighted-average shares 21,172 21,265 21,110
Preferred securities 2,889 2,889 --
Stock option and award dilution 441 338 709
-------- -------- --------
Diluted weighted-average shares 24,502 24,492 21,819
======== ======== ========
Basic earnings per share $ 3.31 $ 4.18 $ 4.85
======== ======== ========
Diluted earnings per share $ 3.15 $ 3.92 $ 4.69
======== ======== ========
</TABLE>
WORKING CAPITAL
Working capital totaled $203.7 million at May 31, 2000, compared to $162.4
million at the prior year-end.
Notes and accounts receivable of $79.2 million at May 31, 2000, compared with
$43.1 million in 1999, are presented net of allowances for doubtful receivables
of $3.3 million in 2000 and $2.8 million in 1999.
The Company has an agreement to sell, on a revolving basis, an interest in a
defined pool of trade receivables of up to $125 million. The agreement is
subject to annual renewal. The maximum amount outstanding varies based upon the
level of eligible receivables. Fees are variable and follow commercial paper
rates. The interest sold totaled $85 million at May 31, 2000, compared to $100
million at the prior year-end. Sales are reflected as reductions of accounts
receivable and as operating cash flows. As collections reduce previously sold
interests, new accounts receivable are customarily sold. Fees and expenses of
$6.2 million and $1.1 million are included in selling, general and
administrative expenses in 2000 and 1999, respectively. The Company, as agent
for the purchaser, retains collection and administration responsibilities for
the participating interests of the defined pool.
-23-
<PAGE> 26
Inventories are summarized as follows:
<TABLE>
<CAPTION>
In thousands 2000 1999
-------- --------
<S> <C> <C>
Finished products $ 61,255 $ 95,658
Work in process 51,785 37,989
Raw materials and supplies 133,870 97,211
-------- --------
$246,910 $230,858
======== ========
</TABLE>
Inventories are stated at cost (not in excess of market) with a majority of
inventories 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 $7.8 million in 2000 and $6.0 million in 1999.
LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
In thousands 2000 1999
-------- --------
<S> <C> <C>
Revolving credit facility maturing in 2004, interest rates
average 7.44% $240,000 $ 90,500
Senior notes
Notes due through 2017, interest rates average 7.28% 200,000 200,000
Notes due through 2008, interest rates average 7.28% 75,000 75,000
Notes due through 2004, interest rates average 10.2% 32,000 40,000
Variable-rate industrial development revenue bonds
Bonds maturing in 2028, interest rate approximately 4.5% 50,000 50,000
Bonds maturing in 2029, interest rate approximately 4.5% 25,000 --
Bonds maturing in 2029, interest rate approximately 4.5%-net 303 103
Pollution control bonds, due through 2007, interest rate
7.13% (75% of prime) 5,895 6,575
Other, maturing through 2009, interest rates
from 7.5% to 10% 4,459 3,355
-------- --------
632,657 465,533
Less current maturities 9,373 9,168
-------- --------
$623,284 $456,365
======== ========
</TABLE>
Annual maturities of long-term debt for each of the five succeeding years are
$9.4, $9.2, $9.2, $294.2 and $41.2 million.
The Company has available a bank-financed $450 million long-term revolving
credit facility. In addition to the $240.0 million currently outstanding under
this facility, $111.5 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 .375% are paid on the unused portion of this facility.
On September 22, 1998 and August 3, 1999, the Company issued variable-rate
industrial development bonds in the amounts of $50 million and $25 million,
respectively. The proceeds reimbursed the Company for costs incurred in
connection with the construction of sewage and solid waste disposal facilities
at its Virginia steel plant. On May 18, 1999, the Company issued bonds in the
amount of $20.5 million of which $303,000 was funded as of May 31, 2000. The
proceeds are available to reimburse future construction costs at its Midlothian
cement plant. The bonds are supported by letters of credit issued under the
Company's revolving credit facility. The interest rates on these bonds closely
follow the tax-exempt commercial paper rates.
-24-
<PAGE> 27
Loan agreements contain covenants that provide for restrictions on the payment
of dividends on common stock and limitations on purchases of treasury stock,
incurring certain indebtedness and making certain investments. Under the most
restrictive of these agreements, the aggregate amount of cash dividends on
common stock is limited based on the ratio of earnings before interest, taxes,
depreciation and amortization to fixed charges. At May 31, 2000, $63.0 million
of additional fixed charges could have been incurred. The Company is in
compliance with all loan covenant restrictions.
The amount of interest paid was $40.6 million in 2000, $33.4 million in 1999 and
$23.2 million in 1998. Interest capitalized totaled $12.7 million in 2000, $23.2
million in 1999 and $4.6 million in 1998.
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).
SHAREHOLDERS' EQUITY
Common stock consists of:
<TABLE>
<CAPTION>
In thousands 2000 1999
------ ------
<S> <C> <C>
Shares authorized 40,000 40,000
Shares outstanding at May 31 21,070 20,991
Shares held in treasury 3,997 4,076
Shares reserved for stock options and other 3,787 3,853
</TABLE>
-25-
<PAGE> 28
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. An
additional 25,000 shares are designated Series B Junior Participating Preferred
Stock. The Series B Preferred Stock is not redeemable and ranks, with respect to
the payment of dividends and the distribution of assets, junior to (i) all other
series of the Preferred Stock unless the terms of any other series shall provide
otherwise and (ii) the $5 Cumulative Preferred Stock. Pursuant to a Rights
Agreement, in November 1996, the Company distributed a dividend of one preferred
share purchase right for each outstanding share of the Company's Common Stock.
Each right entitles the holder to purchase from the Company one two-thousandth
of a share of the Series B Junior Participating Preferred Stock at a price of
$122.50, subject to adjustment. The rights will expire on November 1, 2006
unless the date is extended or the rights are earlier redeemed or exchanged by
the Company pursuant to the Rights Agreement.
STOCK OPTION 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. Outstanding options become
exercisable in installments beginning one year after date of grant and expire
ten years later. The Company has elected to continue utilizing the accounting
prescribed by APB No. 25 for stock issued under this plan. If compensation cost
had been recognized based on the fair value at the date of grant consistent with
the method prescribed by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company's net
income and earnings per share would have been reduced to the following pro forma
amounts:
<TABLE>
<CAPTION>
In thousands except per share 2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net income
As reported $ 69,829 $ 88,743 $ 102,130
Pro forma 66,644 85,755 100,055
Basic earnings per share
As reported 3.31 4.18 4.85
Pro forma 3.16 4.04 4.75
Diluted earnings per share
As reported 3.15 3.92 4.69
Pro forma 3.02 3.80 4.64
</TABLE>
Because the method of accounting under SFAS No. 123 has not been applied to
options granted prior to June 1, 1995, the pro forma compensation cost may not
be representative of that to be expected in future years.
The weighted-average fair value of options granted in 2000, 1999 and 1998 was
$17.39, $12.15 and $16.57, respectively. The fair value of each option grant was
estimated on the date of grant for purposes of the pro forma disclosures using
the Black-Scholes option-pricing model based on the following weighted average
assumptions:
<TABLE>
<CAPTION>
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Dividend yield .74% 1.02% .65%
Volatility factor .327 .331 .258
Risk-free interest rate 6.57% 4.85% 5.45%
Expected life in years 6.4 6.4 6.4
</TABLE>
-26-
<PAGE> 29
A summary of option transactions for the three years ended May 31, 2000,
follows:
<TABLE>
<CAPTION>
Shares Under Weighted-Average
Option Option Price
------------ ----------------
<S> <C> <C>
Outstanding at May 31, 1997 1,797,131 $ 21.62
Granted 365,550 46.27
Exercised (301,678) 16.05
Canceled (44,040) 21.35
---------- ----------
Outstanding at May 31, 1998 1,816,963 27.51
Granted 293,250 31.45
Exercised (39,390) 13.85
Canceled (15,700) 30.61
---------- ----------
Outstanding at May 31, 1999 2,055,123 28.31
Granted 251,800 40.75
Exercised (75,518) 21.41
Canceled (69,280) 32.58
---------- ----------
Outstanding at May 31, 2000 2,162,125 $ 29.86
========== ==========
</TABLE>
Options exercisable as of May 31 were 1,132,855 shares in 2000, 795,753 shares
in 1999 and 430,213 shares in 1998 at a weighted-average option price of $25.29;
$23.54 and $19.87, respectively. The following table summarizes information
about stock options outstanding as of May 31, 2000:
<TABLE>
<CAPTION>
Range of Exercise Prices
$12.03 - $16.85 $21.84 - $37.13 $41.53 - $50.57
--------------- --------------- ---------------
<S> <C> <C> <C>
Options outstanding
Shares outstanding 348,401 1,190,834 622,890
Weighted-average remaining
life in years 4.19 6.67 8.38
Weighted-average exercise price $ 15.24 $ 26.23 $ 44.98
Options exercisable
Shares exercisable 348,401 634,414 150,040
Weighted-average exercise price $ 15.24 $ 25.76 $ 46.60
</TABLE>
The Company has reserved 1,458,460 shares for future grants.
-27-
<PAGE> 30
INCOME TAXES
The Company made income tax payments of $3.9 million, $42.5 million, and $48.5
million in 2000, 1999 and 1998, respectively.
The provisions for income taxes are composed of:
<TABLE>
<CAPTION>
In thousands 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Current $ 22,623 $ 43,323 $ 54,952
Deferred 15,372 4,960 (1,892)
-------- -------- --------
Expense* $ 37,995 $ 48,283 $ 53,060
======== ======== ========
</TABLE>
* Excludes tax benefit of $3.9 million and $3.8 million in 2000 and 1999,
respectively, related to preferred securities of subsidiary.
A reconcilement from statutory federal taxes to the preceding provisions
follows:
<TABLE>
<CAPTION>
In thousands 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Taxes at statutory rate $ 40,241 $ 50,434 $ 55,856
Additional depletion (4,619) (4,663) (3,668)
Nondeductible goodwill 993 981 830
State income tax 1,648 2,060 1,160
Nontaxable insurance
benefits (640) (455) (622)
Other - net 372 (74) (496)
-------- -------- --------
$ 37,995 $ 48,283 $ 53,060
======== ======== ========
</TABLE>
The components of the net deferred tax liability at May 31 are summarized below:
<TABLE>
<CAPTION>
In thousands 2000 1999
--------- ---------
<S> <C> <C>
Deferred tax assets
Deferred compensation $ 7,802 $ 7,345
Expenses not currently tax deductible 6,936 7,507
Tax cost in inventory 4,337 --
Alternative minimum tax credit carryforward 7,607 --
--------- ---------
Total deferred tax assets 26,682 14,852
Deferred tax liabilities
Accelerated tax depreciation 95,014 64,782
Deferred real estate gains 4,970 4,970
Tax cost in inventory -- 3,280
Other 1,555 1,305
--------- ---------
Total deferred tax liabilities 101,539 74,337
--------- ---------
Net tax liability 74,857 59,485
Less current portion (asset) (19,703) (3,468)
--------- ---------
Net deferred tax liability $ 94,560 $ 62,953
========= =========
</TABLE>
As of May 31, 2000, the Company has $7.6 million of alternative minimum tax
credit carryforward. The credit carryforward, which does not expire, is
available for offset against future regular income tax.
-28-
<PAGE> 31
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, however, from time to time
the Company receives claims from federal and state environmental regulatory
agencies and entities asserting that the Company is or may be liable for
environment cleanup costs and related damages. Based on its experience and the
information currently available to it, the Company believes that such claims
will not have a material impact on its financial condition or results of
operations. Despite the Company's compliance and experience, it is possible that
the Company could be held liable for future charges which might be material but
are not currently known or estimable. In addition, changes in federal or state
laws, regulations or requirements or discovery of currently 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.
Information regarding the Company's litigation against certain graphite
electrode suppliers is presented on page 15 under "Other Items" of Management's
Discussion and Analysis of Financial Condition and Results of Operations.
RETIREMENT PLANS
Substantially all employees of the Company are covered by a series of defined
contribution retirement plans. The amount of pension expense charged to costs
and expenses for the above plans was $3.2 million in 2000, $3.2 million in 1999
and $3.8 million in 1998. It is the Company's policy to fund the plans to the
extent of charges to income.
Certain employees and retirees of an acquired subsidiary are covered by defined
retirement and postretirement health benefit plans. The plan assets approximate
the plan benefit obligations. The postretirement liability for these plans was
$9.0 million at May 31, 2000. The amount of pension expense charged to costs and
expenses was $1.1 million in 2000, $1.2 million in 1999 and $500,000 in 1998.
Payments under these plans amounted to $200,000 in 2000, $1.1 million in 1999
and $200,000 in 1998.
INCENTIVE PLANS
All personnel employed as of May 31 share in the pretax income of the Company
for the year then ended based on predetermined formulas. The duration of most of
the plans is one year; certain executives are additionally covered under a
three-year plan. All plans are subject to annual review by the Company's Board
of Directors. The expense included in selling, general and administrative was
$13.6 million, $19.0 million and $17.7 million for 2000, 1999 and 1998,
respectively.
Certain executives of Chaparral participate in a deferred compensation plan
based on a five-year average of earnings. Amounts recorded as expense
(reduction) under the plan were ($1.0) million, ($500,000) and $2.3 million for
2000, 1999 and 1998, respectively.
-29-
<PAGE> 32
OPERATING LEASES
Total expense for operating leases for mobile equipment, office space and other
items (other than for mineral rights) amounted to $24.3 million in 2000, $20.7
million in 1999 and $22.2 million in 1998. Non-cancelable operating leases with
an initial or remaining term of more than one year totaled $60.5 million at May
31, 2000. Annual lease payments for the five succeeding years are $22.4 million,
$12.9 million, $12.4 million, $6.9 million and $5.5 million.
BUSINESS SEGMENTS
The Company has two reportable segments: cement, aggregate and concrete products
(the "CAC" segment) and steel (the "Steel" segment). The Company's reportable
segments are strategic business units that offer different products and
services. They are managed separately because of significant differences in
manufacturing processes, distribution and markets served. 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, piling products, specialty bar
products, merchant bar-quality rounds, reinforcing bar and channels. Operating
profit is net sales less operating costs and expenses, excluding general
corporate expenses and interest expense. Identifiable assets by segment are
those assets that are used in the Company's operation in each segment. Corporate
assets consist primarily of cash, real estate and other financial assets not
identified with a major business segment. Business segment information is
presented on pages 11 and 12.
-30-
<PAGE> 33
QUARTERLY FINANCIAL INFORMATION (Unaudited)
The following is a summary of quarterly financial information (in thousands
except per share):
<TABLE>
<CAPTION>
2000 Aug. Nov. Feb. May
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales
CAC $ 183,719 $ 168,434 $ 149,116 $ 178,498
Steel 128,176 148,806 165,166 184,492
---------- ---------- ---------- ----------
311,895 317,240 314,282 362,990
========== ========== ========== ==========
Operating profit (loss)
CAC 48,752 41,251 31,506 48,208
Steel (8,139) (5,518) 10,971 17,924
---------- ---------- ---------- ----------
40,613 35,733 42,477 66,132
========== ========== ========== ==========
Net income 16,394 10,672 13,884 28,879
Per share
Net income
Basic .78 .51 .65 1.36
Diluted .75 .50 .64 1.26
Dividends .075 .075 .075 .075
Stock price
High 39 5/8 39 3/4 43 3/8 35 3/8
Low 31 1/2 31 1/2 29 7/16 28 11/16
</TABLE>
<TABLE>
<CAPTION>
1999 Aug. Nov. Feb. May
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales
CAC $ 168,877 $ 150,211 $ 148,453 $ 176,816
Steel 130,231 130,191 104,364 117,657
---------- ---------- ---------- ----------
299,108 280,402 252,817 294,473
========== ========== ========== ==========
Operating profit
CAC 45,923 39,363 27,938 52,086
Steel 6,996 4,489 133 1,332
---------- ---------- ---------- ----------
52,919 43,852 28,071 53,418
========== ========== ========== ==========
Net income 27,286 22,794 10,154 28,509
Per share
Net income
Basic 1.28 1.07 .48 1.35
Diluted 1.17 1.01 .48 1.25
Dividends .075 .075 .075 .075
Stock price
High 59 3/4 36 7/8 29 37
Low 32 19 9/16 23 1/16 21 5/8
</TABLE>
Preferred securities were not included in the computation of diluted EPS for the
February 1999 and November 1999 quarters because the effect would have been
antidilutive.
-31-
<PAGE> 34
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
PART III
In accordance with paragraph (3) of General Instruction G to Form 10-K, Part III
of this report is omitted because the Registrant will file with the Securities
Exchange Commission, not later than 120 days after May 31, 2000, a definitive
proxy statement pursuant to Regulation 14A involving the election of Directors.
Reference is made to the sections of such proxy statement entitled "Section
16(a) Beneficial Ownership Reporting Compliance", "Security Ownership of Certain
Beneficial Owners", "Election of Directors", "Executive Compensation", "Report
of the Compensation Committee on Executive Compensation" and "Security Ownership
of Management", which sections of such proxy statement are incorporated herein
by reference. Information concerning the Registrant's executive officers is set
forth under Part I, Item 4A of this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report.
(1) Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets - May 31, 2000 and 1999
Consolidated Statements of Income - Years ended May 31, 2000,
1999 and 1998
Consolidated Statements of Cash Flows - Years ended May 31, 2000,
1999 and 1998
Consolidated Statements of Shareholders' Equity - Years ended
May 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Financial statement schedules have been omitted because they are not applicable
or the information required therein is included elsewhere in the financial
statements or notes thereto.
(3) Listing of Exhibits
2.1 Agreement and Plan of Merger dated as of July 30, 1997 among
Chaparral Steel Company, the Company and TXI Acquisition Inc.
incorporated by reference to Exhibit (c) of the Company's
Schedule 13E-3/A Transaction Statement dated November 28, 1997
and incorporated herein by reference.
3.1 Articles of Incorporation (previously filed and incorporated
herein by reference)
3.2 By-laws (previously filed and incorporated herein by reference)
4.1 Instruments defining rights of security holders (previously
filed and incorporated herein by reference)
The Registrant agrees to furnish to the Commission, upon request, copies of all
instruments with respect to long-term debt not being registered where the total
amount of securities authorized thereunder does not exceed 10% of the total
assets of Registrant and its subsidiaries on a consolidated basis.
-32-
<PAGE> 35
(3) Listing of Exhibits-Continued
10.1 Partnership Interests Purchase Agreement with an effective date
of December 31, 1997 by and among TXI California Inc., TXI
Riverside Inc., RVC Venture Corp. and Ssangyong/Riverside
Venture Corp. filed with the Securities and Exchange Commission
on Form 8-K dated January 26, 1998, and incorporated herein by
reference.
10.2 $450,000,000 Third Amended and Restated Credit Agreement among
Texas Industries Inc., Certain Leaders, Certain Co-Agents and
NationsBank, N.A., as Administrative Lender dated March 10, 1999
filed with the Securities and Exchange Commission on Form 10-Q
dated April 9, 1999, and incorporated herein by reference.
10.3 Texas Industries, Inc. $80,000,000 7.15% Senior Notes, Series A,
due April 15, 2006; $40,000,000 7.20% Senior Notes, Series B,
due April 15, 2007; $10,000,000 7.28% Senior Notes, Series C,
due April 15, 2009; $45,000,000 7.395% Senior Notes, Series D,
due April 15, 2012; $25,000,000 7.59% Senior Notes, Series E,
due April 15, 2017 note agreement dated as of December 18, 1997
filed with the Securities and Exchange Commission on Form 10-Q
dated April 10, 1998, and incorporated herein by reference.
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Auditors
24.1 Power of Attorney for certain members of the Board of Directors
27.1 Financial Data Schedule (electronically filed only)
This schedule contains summary financial information extracted from the
Registrant's May 31, 2000 Consolidated Financial Statements and is qualified in
its entirety by reference to such financial statements.
The remaining exhibits have been omitted because they are not applicable or the
information required therein is included elsewhere in the financial statements
or notes thereto.
(b) Reports on Form 8-K
None
-33-
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the issuer has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 23rd day of August, 2000.
TEXAS INDUSTRIES, INC.
By /s/ Robert D. Rogers
----------------------------
Robert D. Rogers, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert D. Rogers President and Chief Executive Officer August 23, 2000
-------------------------------
Robert D. Rogers (Principal Executive Officer)
/s/ Richard M. Fowler Executive Vice President - Finance and August 23, 2000
------------------------------
Richard M. Fowler Chief Financial Officer
(Principal Financial Officer)
/s/ James R. McCraw Vice President - Accounting/Information Services August 23, 2000
-------------------------------
James R. McCraw (Principal Accounting Officer)
Director August 23, 2000
-------------------------------
Robert Alpert
/s/ John M. Belk* Director August 23, 2000
-------------------------------
John M. Belk
Director August 23, 2000
-------------------------------
Eugenio Clariond Reyes
/s/ Gordon E. Forward* Director August 23, 2000
-------------------------------
Gordon E. Forward
/s/ Gerald R. Heffernan* Director August 23, 2000
-------------------------------
Gerald R. Heffernan
/s/ James M. Hoak* Director August 23, 2000
-------------------------------
James M. Hoak
/s/ Robert D. Rogers Director August 23, 2000
-------------------------------
Robert D. Rogers
/s/ Ian Wachtmeister* Director August 23, 2000
-------------------------------
Ian Wachtmeister
/s/ Elizabeth C. Williams* Director August 23, 2000
-------------------------------
Elizabeth C. Williams
*BY /s/ James R. McCraw Vice President - Accounting/Information Services August 23, 2000
------------------------
James R. McCraw
</TABLE>
-34-
<PAGE> 37
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as of July 30, 1997 among Chaparral Steel Company, the
Company and TXI Acquisition Inc., incorporated by reference to Exhibit (c) of the Company's
Schedule 13E-3/A Transaction Statement dated November 28, 1997.........................................*
3.1 Articles of Incorporation..............................................................................*
3.2 By-Laws................................................................................................*
4.1 Instruments defining rights of security holders........................................................*
10.1 Partnership Interests Purchase Agreement with an effective date of December 31, 1997
by and among TXI California Inc., TXI Riverside Inc., RVC Venture Corp. and
Ssangyong/Riverside Venture Corp. filed with the Securities and Exchange Commission
on Form 8-K dated January 26, 1998.....................................................................*
10.2 $450,000,000 Third Amended and Restated Credit Agreement among
Texas Industries Inc., Certain Leaders, Certain Co-Agents and
NationsBank, N.A., as Administrative Lender dated March 10, 1999
filed with the Securities and Exchange Commission on Form 10-Q dated April 9, 1999.....................*
10.3 Texas Industries, Inc. $80,000,000 7.15% Senior Notes, Series A, due April 15, 2006;
$40,000,000 7.20% Senior Notes, Series B, due April 15, 2007;
$10,000,000 7.28% Senior Notes, Series C, due April 15, 2009;
$45,000,000 7.395% Senior Notes, Series D, due April 15, 2012;
$25,000,000 7.59% Senior Notes, Series E, due April 15, 2017 note agreement
dated as of December 18, 1997 filed with the Securities and Exchange Commission
on Form 10-Q dated April 10, 1998......................................................................*
21.1 Subsidiaries and Affiliates of the Registrant.........................................................36
23.1 Consent of Independent Auditors.......................................................................37
24.1 Power of Attorney for certain members of the Board of Directors.......................................38
27.1 Financial Data Schedule...............................................................................**
</TABLE>
* Previously filed and incorporated herein by reference.
** Electronically filed only.
-35-
