<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2000
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 1-4887
TEXAS INDUSTRIES, INC.
(Exact name of registrant as specified in the charter)
Delaware 75-0832210
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1341 West Mockingbird Lane, Suite 700W, Dallas, Texas 75247-6913
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 647-6700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of April 10, 2000, 21,068,828 shares of Registrant's Common Stock, $1.00 par
value, were outstanding.
Page 1 of 21
<PAGE>
INDEX
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
- -----------------------------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - February 29, 2000 and May 31, 1999....................... 3
Consolidated Statements of Income -- three months and nine months ended
February 29, 2000 and February 28, 1999............................................. 4
Consolidated Statements of Cash Flows -- nine months ended February 29, 2000
and February 28, 1999............................................................... 5
Notes to Consolidated Financial Statements............................................. 6
Independent Accountants' Review Report................................................. 12
Item 2. Management's Discussion and Analysis of Operating Results
and Financial Condition............................................................. 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk -- the information
required by this item is included in Item 2......................................... --
PART II. OTHER INFORMATION
- -----------------------------
Item 1. Legal Proceedings...................................................................... 18
Item 6. Exhibits and Reports on Form 8-K....................................................... 18
</TABLE>
SIGNATURES
- ----------
-2-
<PAGE>
CONSOLIDATED BALANCE SHEETS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
February 29, May 31,
- ------------------------------------------------------------------------------
In thousands 2000 1999
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 6,926 $ 17,652
Notes and accounts receivable 58,988 43,119
Inventories 235,198 230,858
Prepaid expenses 29,318 18,776
---------- ----------
TOTAL CURRENT ASSETS 330,430 310,405
OTHER ASSETS
Real estate and other investments 19,532 19,925
Goodwill and other intangibles 153,788 155,349
Other 44,423 39,150
---------- ----------
217,743 214,424
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 185,097 148,184
Buildings 83,442 75,110
Machinery and equipment 1,465,320 952,657
Construction in progress 212,921 525,439
---------- ----------
1,946,780 1,701,390
Less allowances for depreciation 759,487 695,166
---------- ----------
1,187,293 1,006,224
---------- ----------
$1,735,466 $1,531,053
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 77,333 $ 82,790
Accrued interest, wages and other items 64,135 56,036
Current portion of long-term debt 9,058 9,168
---------- ----------
TOTAL CURRENT LIABILITIES 150,526 147,994
LONG-TERM DEBT 602,782 456,365
DEFERRED FEDERAL INCOME TAXES AND OTHER CREDITS 111,698 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 258,158 257,773
Retained earnings 476,862 440,645
Cost of common shares in treasury (89,627) (90,935)
---------- ----------
670,460 632,550
---------- ----------
$1,735,466 $1,531,053
========== ==========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
(Unaudited)
CONSOLIDATED STATEMENTS OF INCOME
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended Nine months ended
February February
- --------------------------------------------------------------------------------------------
In thousands except per share 2000 1999 2000 1999
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $314,282 $252,817 $943,417 $832,327
COSTS AND EXPENSES (INCOME)
Cost of products sold 262,575 215,650 782,058 666,089
Selling, general and administrative 28,032 24,220 83,771 74,546
Interest 9,721 2,961 22,882 10,057
Other income (9,773) (7,485) (15,509) (16,581)
-------- -------- -------- --------
290,555 235,346 873,202 734,111
-------- -------- -------- --------
INCOME BEFORE THE FOLLOWING ITEMS 23,727 17,471 70,215 98,216
Income taxes 8,055 5,530 23,902 32,699
-------- -------- -------- --------
15,672 11,941 46,313 65,517
Dividends on preferred securities - net of tax (1,788) (1,787) (5,363) (5,283)
-------- -------- -------- --------
NET INCOME $ 13,884 $ 10,154 $ 40,950 $ 60,234
======== ======== ======== ========
BASIC
Average shares 21,190 21,285 21,161 21,316
Earnings per share $ .65 $ .48 $ 1.94 $ 2.83
======== ======== ======== ========
DILUTED
Average shares 24,581 21,485 24,520 24,570
Earnings per share $ .64 $ .48 $ 1.90 $ 2.67
======== ======== ======== ========
Cash dividends $ .075 $ .075 $ .225 $ .225
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Nine months ended
February
- ----------------------------------------------------------------------------------------
In thousands 2000 1999
- ----------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 40,950 $ 60,234
Gain on disposal of assets (1,052) (2,830)
Non-cash items
Depreciation, depletion and amortization 73,086 58,000
Deferred taxes 12,466 (1,488)
Other - net 6,398 5,133
Changes in operating assets and liabilities
Notes and accounts receivable (19,653) 5,619
Inventories and prepaid expenses (11,574) (56,008)
Accounts payable and accrued liabilities 8,543 7,298
Real estate and investments 393 3,809
--------- ---------
Net cash provided by operations 109,557 79,767
INVESTING ACTIVITIES
Capital expenditures - expansions (213,598) (292,340)
Capital expenditures - other (38,655) (77,629)
Proceeds from disposal of assets 3,239 7,469
Other - net (11,743) (3,916)
--------- ---------
Net cash used by investing (260,757) (366,416)
FINANCING ACTIVITIES
Proceeds from long-term borrowing 230,200 259,232
Net proceeds from issuance of subsidiary preferred securities -- 193,589
Debt retirements (83,905) (163,721)
Purchase of treasury shares (143) (2,817)
Common dividends paid (4,732) (4,775)
Other - net (946) (3,545)
--------- ---------
Net cash provided by financing 140,474 277,963
--------- ---------
Decrease in cash (10,726) (8,686)
Cash at beginning of period 17,652 16,718
--------- ---------
Cash at end of period $ 6,926 $ 8,032
========= =========
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Texas Industries, Inc. ("TXI" or the "Company"), is a leading supplier of
construction materials through two business segments: cement, aggregate and
concrete products (the "CAC" segment) and structural steel and specialty bar
products (the "Steel" segment). Through the CAC segment, the Company produces
and sells cement, stone, sand and gravel, expanded shale and clay aggregate and
concrete products from facilities concentrated in Texas, Louisiana, and
California, with several products marketed throughout the United States.
Through its Steel segment, the Company produces and sells structural steel,
specialty bar products, merchant bar-quality rounds, reinforcing bar and
channels for markets in North America and, under certain market conditions,
Europe and Asia.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended February 29,
2000, are not necessarily indicative of the results that may be expected for the
year ended May 31, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended May 31, 1999.
Estimates. The preparation of financial statements and accompanying notes in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported. Actual results
could differ from those estimates.
Principles of Consolidation. The consolidated financial statements include the
accounts of the Company and all subsidiaries.
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 $32.4 million at February 29, 2000 and $28.1 million
at May 31, 1999. Goodwill resulting from the acquisitions of Chaparral Steel
Company and Riverside Cement Company, totaling $147.7 million at February 29,
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.
Settlement of appraisal rights relating to the acquisition of the minority
interest in Chaparral resulted in the recognition of $2.0 million additional
goodwill during the February 2000 quarter. 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 $32.4 million at February 29, 2000 compared to
$31.2 million at May 31, 1999, are composed primarily of liabilities related to
the Company's retirement plans and deferred compensation agreements.
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.
-6-
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued
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 the preferred securities, stock options and awards.
Basic and Diluted EPS are calculated as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
February February
- -----------------------------------------------------------------------------------------------------
In thousands except per share 2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings:
Net income $13,884 $10,154 $40,950 $60,234
Contingent price amortization 58 58 174 174
------- ------- ------- -------
Basic earnings 13,942 10,212 41,124 60,408
Dividends on preferred securities - net of tax 1,788 -- 5,363 5,283
------- ------- ------- -------
Diluted earnings $15,730 $10,212 $46,487 $65,691
======= ======= ======= =======
Shares:
Weighted average shares outstanding 21,052 21,163 21,026 21,197
Contingently issuable shares 138 122 135 119
------- ------- ------- -------
Basic weighted-average shares 21,190 21,285 21,161 21,316
Preferred securities 2,889 -- 2,889 2,889
Stock option and award dilution 502 200 470 365
------- ------- ------- -------
Diluted weighted-average shares/(1)/ 24,581 21,485 24,520 24,570
======= ======= ======= =======
Basic earnings per share $.65 $.48 $1.94 $2.83
======= ======= ======= =======
Diluted earnings per share $.64 $.48 $1.90 $2.67
======= ======= ======= =======
/(1)/ Shares excluded due to antidilutive effect:
Preferred securities -- 2,889 -- --
Stock options 517 788 451 585
</TABLE>
WORKING CAPITAL
Working capital totaled $179.9 million at February 29, 2000, compared to $162.4
million at May 31, 1999.
Notes and accounts receivable of $59.0 million at February and $43.1 million at
May are presented net of allowances for doubtful receivables of $4.2 million at
February and $2.8 million at May.
On March 15, 1999, the Company entered into an agreement to sell, on a revolving
basis, an interest in a defined pool of trade receivables of up to $100 million.
The agreement is subject to annual renewal. The maximum amount outstanding
varies based upon the level of eligible receivables. The sales were reflected
as accounts receivable reductions and as operating cash flows. As collections
reduce previously sold interests, new accounts receivable are customarily sold.
A $100 million interest was outstanding at February 29, 2000 and May 31, 1999.
Fees are variable and follow commercial paper rates. Fees and expenses included
in selling, general and administrative expense amounted to $1.6 million and $4.5
million for the three-month and nine-month periods ended February 29, 2000,
respectively. The Company, as agent for the purchaser, retains collection and
administration responsibilities for the participating interests of the defined
pool.
-7-
<PAGE>
WORKING CAPITAL-Continued
Inventories are summarized as follows:
-------------------------------------------------
In thousands February May
-------------------------------------------------
Finished products $ 60,584 $ 95,658
Work in process 54,708 37,989
Raw materials and supplies 119,906 97,211
-------- --------
$235,198 $230,858
======== ========
Inventories are stated at cost (not in excess of market) with approximately half
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 $7.0 million at February and $6.0 million at
May.
LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
In thousands February May
-----------------------------------------------------------------------------------
<S> <C> <C>
Revolving credit facility maturing in 2004, interest rates
average 7.19% $212,250 $ 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% 40,000 40,000
Variable-rate industrial development revenue bonds
Bonds maturing in 2028, interest rate approximately 3.5% 50,000 50,000
Bonds maturing in 2029, interest rate approximately 3.5%-net 303 103
Bonds maturing in 2029, interest rate approximately 3.5%-net 25,000 --
Pollution control bonds, due through 2007, interest
rate 6.56% (75% of prime) 6,235 6,575
Other, maturing through 2009, interest rates
from 8% to 10% 3,052 3,355
-------- --------
611,840 465,533
Less current maturities 9,058 9,168
-------- --------
$602,782 $456,365
======== ========
</TABLE>
Annual maturities of long-term debt for each of the five succeeding years are
$9.1, $9.0, $8.9, $8.9 and $266.2 million.
The Company has available a bank-financed $450 million long-term revolving
credit facility. In addition to the $212.3 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 .30% 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 February 29, 2000.
The proceeds are available to reimburse future construction costs at its
Midlothian cement plant.
-8-
<PAGE>
LONG-TERM DEBT-Continued
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 annual cash dividends
on common stock is limited based on the ratio of earnings before interest,
taxes, depreciation and amortization to fixed charges. The Company is in
compliance with all loan covenant restrictions.
The amount of interest paid for the nine-month periods presented was $24.5
million in 2000 and $17.7 million in 1999. Interest capitalized totaled $9.6
million and $15.0 million in the 2000 and 1999 periods, respectively.
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:
- --------------------------------------------------------------------
In thousands February May
-------------------------------------------------------------------
Shares authorized 40,000 40,000
Shares outstanding at end of period 21,064 20,991
Shares held in treasury 4,003 4,076
Shares reserved for stock options and other 3,792 3,853
-9-
<PAGE>
SHAREHOLDER'S EQUITY-Continued
There are authorized 100,000 shares of Cumulative Preferred Stock, no par value,
of which 20,000 shares are designated $5 Cumulative Preferred Stock (Voting),
redeemable at $105 per share and entitled to $100 per share upon dissolution.
On March 29, 1996 the Company redeemed and retired all outstanding shares of
such $5 Cumulative Preferred Stock. An additional 25,000 shares are designated
Series B Junior Participating Preferred Stock. The Series B Preferred Stock is
not redeemable and ranks, with respect to the payment of dividends and the
distribution of assets, junior to (i) all other series of the Preferred Stock
unless the terms of any other series shall provide otherwise and (ii) the $5
Cumulative Preferred Stock. Pursuant to a Rights Agreement, in November 1996,
the Company distributed a dividend of one preferred share purchase right for
each outstanding share of the Company's Common Stock. Each right entitles the
holder to purchase from the Company one two-thousandth of a share of the Series
B Junior Participating Preferred Stock at a price of $122.50, subject to
adjustment. The rights will expire on November 1, 2006 unless the date is
extended or the rights are earlier redeemed or exchanged by the Company pursuant
to the Rights Agreement.
STOCK OPTION PLAN
The Company's stock option plan provides that non-qualified and incentive stock
options to purchase Common Stock may be granted to directors, officers and key
employees at market prices at date of grant. Generally, options become
exercisable in installments beginning one year after date of grant and expire
ten years later.
A summary of option transactions for the nine-month period ended February 29,
2000, follows:
---------------------------------------------------------------------------
Weighted Average
Shares Under Option Option Price
---------------------------------------------------------------------------
Outstanding at June 1 2,055,123 $28.31
Granted 238,800 41.25
Exercised (70,198) 21.93
Cancelled (56,070) 31.76
--------- ------
Outstanding at February 29 2,167,655 $29.85
========= ======
At February 29, 2000, there were 1,139,775 shares exercisable and 1,458,250
shares available for future grants. Outstanding options expire on various dates
to January 12, 2010.
INCOME TAXES
Federal income taxes for the interim periods ended February 29, 2000 and
February 28, 1999, have been included in the accompanying financial statements
on the basis of an estimated annual rate. The estimated annualized tax rate is
33.9% for 2000 compared with 33.1% for 1999. The primary reason that these
respective tax rates differ from the 35% statutory corporate rate is due to
goodwill expense which is not tax deductible, percentage depletion which is tax
deductible and the state income tax expense. The Company made income tax
payments of $3.0 million and $37.4 million in the nine-month periods ended
February 29, 2000 and February 28, 1999, respectively.
-10-
<PAGE>
LEGAL PROCEEDINGS AND CONTINGENT LIABILITIES
The Company is subject to federal, state and local environmental laws and
regulations concerning, among other matters, air emissions, furnace dust
disposal and wastewater discharge. The Company believes it is in substantial
compliance with applicable environmental laws and regulations; 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, the
Company believes that currently known 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 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 16 under "Other Items" of Management's
Discussion and Analysis of Financial Condition and Results of Operations.
-11-
<PAGE>
EXHIBIT A
---------
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors
Texas Industries, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of Texas
Industries, Inc. and subsidiaries as of February 29, 2000 and the related
condensed consolidated statements of income for the three-month and nine-month
periods ended February 29, 2000 and February 28, 1999, and the condensed
consolidated statements of cash flows for the nine-month periods ended February
29, 2000 and February 28, 1999. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with accounting principles generally
accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Texas
Industries, Inc. and subsidiaries as of May 31, 1999, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
year then ended [not presented herein] and in our report dated July 16, 1999, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of May 31, 1999, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
/s/ Ernst & Young LLP
----------------------
March 13, 2000
Dallas, Texas
-12-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of operations and financial condition for the three-month and nine-
month periods ended February 29, 2000 to the three-month and nine-month periods
ended February 28, 1999.
BUSINESS SEGMENTS
The Company is a leading supplier of construction materials through two business
segments: cement, aggregate and concrete products (the "CAC" segment); and
structural steel and specialty bar products (the "Steel" segment). Through the
CAC segment, the Company produces and sells cement, stone, sand and gravel,
expanded shale and clay aggregate and concrete products. Through its Steel
segment, the Company produces and sells structural steel, specialty bar
products, merchant bar-quality rounds, reinforcing bar and channels.
Corporate resources include administration, financial, legal, environmental,
personnel and real estate activities that are not allocated to operations and
are excluded from operating profit.
Business Segments
Three months ended Nine months ended
February February
- ------------------------------------------------------------------------------
In thousands 2000 1999 2000 1999
- ------------------------------------------------------------------------------
TOTAL SALES
Cement $ 69,635 $ 67,025 $228,622 $212,774
Ready-mix 55,645 61,831 197,922 185,257
Stone, sand & gravel 23,030 21,367 77,721 71,816
Structural mills 134,948 80,677 351,492 270,204
Bar mill 26,193 21,532 79,328 84,264
UNITS SHIPPED
Cement (tons) 937 887 3,001 2,803
Ready-mix (cubic yards) 889 994 3,120 3,070
Stone, sand & gravel (tons) 4,377 3,893 14,284 13,346
Structural mills (tons) 378 245 1,074 714
Bar mill (tons) 79 62 238 237
NET SALES
Cement $ 53,088 $ 48,541 $171,780 $154,934
Ready-mix 55,548 61,712 197,555 184,780
Stone, sand & gravel 15,869 14,296 54,316 50,858
Other products 24,611 23,904 77,618 76,969
-------- -------- -------- --------
TOTAL CAC 149,116 148,453 501,269 467,541
Structural mills 134,948 80,677 351,492 270,204
Bar mill 26,193 21,532 79,328 84,264
Other 4,025 2,155 11,328 10,318
-------- -------- -------- --------
TOTAL STEEL 165,166 104,364 442,148 364,786
-------- -------- -------- --------
TOTAL NET SALES $314,282 $252,817 $943,417 $832,327
======== ======== ======== ========
-13-
<PAGE>
Business Segments-Continued
<TABLE>
<CAPTION>
Three months ended Nine months ended
February February
- -------------------------------------------------------------------------------------------------
In thousands 2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CAC OPERATIONS
Gross profit $51,136 $46,041 $181,793 $165,136
Less: Depreciation, depletion & amortization 9,823 9,141 29,228 27,368
Selling, general & administrative 9,825 9,665 32,494 28,352
Other income (18) (703) (1,438) (3,808)
------- ------- ------- -------
OPERATING PROFIT 31,506 27,938 121,509 113,224
STEEL OPERATIONS
Gross profit 25,150 9,218 48,614 55,194
Less: Depreciation & amortization 15,825 10,040 43,048 29,917
Selling, general & administrative 7,453 5,579 20,023 21,109
Other income (9,099) (6,534) (11,771) (7,450)
------- ------- ------- -------
OPERATING PROFIT (LOSS) 10,971 133 (2,686) 11,618
------- ------- ------- -------
TOTAL OPERATING PROFIT 42,477 28,071 118,823 124,842
CORPORATE RESOURCES
Other income 656 248 2,300 5,323
Less: Depreciation & amortization 289 230 810 715
Selling, general & administrative 9,396 7,657 27,216 21,177
------- ------- ------- -------
(9,029) (7,639) (25,726) (16,569)
INTEREST EXPENSE (9,721) (2,961) (22,882) (10,057)
------- ------- ------- -------
INCOME BEFORE TAXES & OTHER ITEMS $23,727 $17,471 $ 70,215 $ 98,216
======= ======= ======= =======
</TABLE>
RESULTS OF OPERATIONS
Net Sales. Consolidated net sales for the current quarter were $314.3 million,
an increase of $61.5 million from the prior year quarter. Consolidated net
sales for the current nine-month period were $943.4 million, an increase of
$111.1 million from the prior year period. Sales for both CAC and Steel
segments improved.
CAC net sales for the current quarter were comparable to the prior year period.
Sales for the current nine-month period were up 7%. Strong construction
activity continues to sustain demand for building materials in the Company's CAC
markets. Total cement sales for the current quarter increased 4% from the prior
year quarter on 6% higher shipments. Total cement sales for the current nine-
month period increased 7% from the prior year period on 7% higher shipments.
Average trade prices remained at prior year levels. Ready-mix sales for the
current quarter decreased 10% from the prior year period on 11% lower volume.
Ready-mix sales in the current nine-month period were 7% above the prior year on
5% higher average prices. Aggregate sales in the current quarter increased 8%
over the prior year period due to a 12% increase in shipments with average trade
prices somewhat lower.
Steel sales were up 58% for the current quarter and 21% for the current nine-
month period from the prior year. Shipments in the current quarter were 49%
above the prior year quarter with realized prices improving 6%. There continues
to be strong demand for structural products in North America. Realized
structural steel prices increased 9% in the current quarter from the November
1999 quarter on 6% higher shipments. Structural steel price increases announced
during the last half of calendar 1999 should result in continued price recovery.
Bar mill sales in the current quarter increased 22% with shipments 28% higher
and average prices 5% lower than the prior year quarter.
-14-
<PAGE>
Operating Costs. Consolidated cost of products sold including depreciation,
depletion and amortization for the current quarter was $262.6 million, an
increase of $46.9 million from the prior year quarter. Costs for the current
nine-month period were $782.1 million, an increase of $116.0 million from the
prior year period. CAC costs decreased from the prior year $3.7 million in the
quarter due to lower cement unit manufacturing costs and ready-mix volume.
Costs increased $18.9 million in the nine-month period due primarily to
increased ready-mix distribution costs and aggregate production. Steel costs
increased from the prior year $50.7 million in the quarter and $97.1 million in
the nine-month period on increased shipments, higher scrap prices and the start-
up operations in Virginia with its expected high cost and low production.
CAC selling, general and administrative expenses including depreciation and
amortization increased from the prior year $100,000 in the quarter and $4.2
million in the nine-month period due primarily to higher incentive accruals.
Steel expenses increased from the prior year $1.9 million in the quarter due in
part to increased incentive accruals and Virginia administrative expenses.
Expenses decreased $1.1 million in the nine-month period due in part to lower
selling expense and incentive accruals partially offset by increased Virginia
administrative expenses.
Operating Profit. Operating profit of $42.5 million for the current quarter was
$14.4 million higher than the prior year period. Operating profit of $118.8
million for the current nine-month period was $6.0 million lower than the prior
year period. CAC operating profit was up 13% for the quarter and 7% for the
nine-month period due to increased shipments. Cement profit margins improved in
the current quarter due to lower unit manufacturing costs offset by higher
ready-mix distribution costs. Steel operating profit increased $10.8 million in
the current quarter from the prior year quarter and $16.5 million from the
November 1999 quarter. This reflects the increase in shipments and structural
beam prices experienced over the past six months offset by higher costs of
manufacturing in the recent start-up of the Virginia plant. The profit in both
the current quarter and the prior year quarter includes $6.3 million in pre-tax
income from the Company's litigation against certain graphite electrode
suppliers.
The Company's new Virginia steel plant began operations in August 1999. Start-
up of the Virginia steel plant could adversely affect near term results as
higher than normal unit operating costs are expected due to lower production.
Corporate Resources. Selling, general and administrative expenses including
depreciation and amortization increased from the prior year $1.8 million for the
quarter and $6.1 million for the nine-month period. The ongoing costs of the
Company's March 1999 agreement to sell receivables, and higher real estate,
insurance and retirement expense were partially offset by lower incentive
accruals. Other income decreased $3.0 million in the current nine-month period
due to lower income from interest and the Company's real estate operations.
Interest Expense. Interest expense for the current nine-month period at $22.9
million was $12.8 million higher than the prior year period due to a $7.4
million increase in interest resulting from higher average debt outstanding and
a $5.4 million reduction in interest capitalized.
Income Taxes. The Company's current effective tax rate is estimated at 33.9%
compared to 33.1% in the prior year period. The primary reason that the tax
rate differs from the 35% statutory corporate rate is due to goodwill expense
that is not tax deductible, percentage depletion that 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 $5.4 million in the
current nine-month period and $5.3 million in the prior year period.
-15-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $109.6 million, an increase of
$29.8 million over the prior year nine-month period, primarily due to changes in
working capital items and higher provisions for depreciation, depletion and
amortization and deferred taxes that were partially offset by lower net income.
As is typical of the winter quarter, CAC inventories grew. Increased Steel
shipments and prices increased receivables and decreased inventories. Accounts
payable and accrued expenses increased primarily due to increased interest and
income tax accruals. During the 1999 period, the decline in Steel shipments and
prices reduced receivables and sharply increased inventories. Accounts payable
and accrued expenses increased in part due to higher interest accruals.
Net cash used by investing activities was $260.8 million compared to $366.4
million during the prior year nine-month period, consisting principally of
capital expenditure items. Historically, capital expenditures have been for
normal replacement and technological upgrades of existing equipment. The fiscal
year 2000 capital expenditure budget for such equipment is estimated currently
at $90 million. Expenditures for these activities were $38.7 million in the
current nine-month period compared to $77.6 million in the prior year period.
Capital expenditures for plant expansions included $146.3 million in the current
nine-month period 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, $67.0
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 $140.5 million, compared to $278.0
million during the prior year nine-month period. During the current nine-month
period, 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. The Company has a $450 million revolving credit
facility that expires in March 2004. At February 29, 2000, $212.3 million was
outstanding under the credit facility and an additional $111.5 million had been
utilized to support letters of credit. On June 5, 1998, TXI Capital Trust I, a
Delaware business trust wholly owned by the Company, issued 4,000,000 of its
5.5% Shared Preference Redeemable Securities 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 period.
The Company generally finances its major capital expansion projects with long-
term borrowing. Maintenance capital expenditures and working capital are funded
by cash flow from operations. The Company expects cash from operations, 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 during the next two years.
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.
-16-
<PAGE>
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, the Company believes that currently known 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. Expected maturity dates and average interest rates of
long-term debt are essentially unchanged since May 31, 1999.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995. Certain statements contained in this
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 conditions on the
Company's business and its dependence on residential and commercial construction
activity, and the impact of environmental laws and other regulations.
-17-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In October 1998, Riverside Cement Company ("Riverside"), acquired by the Company
in December 1997, received a proposed Administrative Order on Consent for De
Minimis Contributors, pursuant to which Riverside would pay the United States
Environmental Protection Agency ("USEPA") $108,788 to settle any legal
responsibilities it may have to the USEPA because of Riverside's disposal of
waste material at times between 1973 and 1989 at Casmalia Disposal Site in
Santa Barbara County, California, and to obtain protection against contribution
actions by other potentially responsible parties to the USEPA action at the
Site. Riverside settled such responsibilities with the USEPA for $67,803, and
received a comprehensive release.
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
(15) Letter re: Unaudited Interim Financial Information
(27) Financial Data Schedule
This schedule contains summary financial information extracted from the
Registrant's Unaudited February 29, 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.
The Registrant did not file any reports on Form 8-K during the three-month
period ended February 29, 2000.
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
TEXAS INDUSTRIES, INC.
April 12, 2000 /s/ Richard M. Fowler
- -------------- ---------------------
Richard M. Fowler
Vice President - Finance and Chief Financial
Officer
(Principal Financial Officer)
April 12, 2000 /s/ James R. McCraw
- -------------- -------------------
James R. McCraw
Vice President - Accounting and Information
Services
(Principal Accounting Officer)
-19-
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibits Page
<S> <C>
15. Letter re: Unaudited Interim Financial Information...... 21
27. Financial Data Schedule.................................. **
</TABLE>
** Electronically filed only.
-20-
<PAGE>
EXHIBIT 15
Board of Directors
Texas Industries, Inc.
We are aware of the incorporation by reference in the Post-Effective Amendment
Number 9 to Registration Statement Number 2-48986 on Form S-8, Registration
Statement Number 33-53715 on Form S-8 and Registration Statement Number 333-
11604 on Form S-8 of Texas Industries, Inc. and in the related Prospectuses of
our report dated March 13, 2000, relating to the unaudited condensed
consolidated interim financial statements of Texas Industries, Inc. which are
included in its Form 10-Q for the quarter ended February 29, 2000.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not part of
the Registration Statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
/s/ Ernst & Young LLP
---------------------
April 11, 2000
Dallas, Texas
-21-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED FEBRUARY 29, 2000 CONSOLIDATED FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-END> FEB-29-2000
<CASH> 6,926
<SECURITIES> 0
<RECEIVABLES> 63,185
<ALLOWANCES> 4,197
<INVENTORY> 235,198
<CURRENT-ASSETS> 330,430
<PP&E> 1,946,780
<DEPRECIATION> 759,487
<TOTAL-ASSETS> 1,735,466
<CURRENT-LIABILITIES> 150,526
<BONDS> 602,782
200,000
0
<COMMON> 25,067
<OTHER-SE> 645,393
<TOTAL-LIABILITY-AND-EQUITY> 1,735,466
<SALES> 943,417
<TOTAL-REVENUES> 943,417
<CGS> 782,058
<TOTAL-COSTS> 782,058
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,348
<INTEREST-EXPENSE> 22,882
<INCOME-PRETAX> 70,215
<INCOME-TAX> 23,902
<INCOME-CONTINUING> 40,950
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,950
<EPS-BASIC> 1.94
<EPS-DILUTED> 1.90
</TABLE>
