<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 1-4887
TEXAS INDUSTRIES, INC.
(Exact name of registrant as specified in the charter)
Delaware 75-0832210
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1341 West Mockingbird Lane, Suite 700W, Dallas, Texas 75247-6913
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 647-6700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
---
As of January 7, 2000, 21,050,972 shares of Registrant's Common Stock, $1.00 par
value, were outstanding.
Page 1 of 21
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INDEX
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
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<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - November 30, 1999 and May 31, 1999........... 3
Consolidated Statements of Income -- three months and six months ended
November 30, 1999 and November 30, 1998................................. 4
Consolidated Statements of Cash Flows -- six months ended November 30, 1999
and November 30, 1998................................................... 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
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Item 4. Submission of Matters to a Vote of Security Holders........................ 18
Item 6. Exhibits and Reports on Form 8-K........................................... 18
</TABLE>
SIGNATURES
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<PAGE>
CONSOLIDATED BALANCE SHEETS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
November 30, May 31,
- ---------------------------------------------------------------------------------------------
In thousands 1999 1999
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 8,813 $ 17,652
Notes and accounts receivable 54,092 43,119
Inventories 224,688 230,858
Prepaid expenses 24,447 18,776
---------- ---------
TOTAL CURRENT ASSETS 312,040 310,405
OTHER ASSETS
Real estate and other investments 19,547 19,925
Goodwill and other intangibles 152,607 155,349
Other 40,458 39,150
---------- ---------
212,612 214,424
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 184,180 148,184
Buildings 83,104 75,110
Machinery and equipment 1,460,969 952,657
Construction in progress 160,054 525,439
---------- ---------
1,888,307 1,701,390
Less allowances for depreciation 737,714 695,166
---------- ---------
1,150,593 1,006,224
---------- ---------
$ 1,675,245 $ 1,531,053
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 97,801 $ 82,790
Accrued interest, wages and other items 61,956 56,036
Current portion of long-term debt 9,117 9,168
---------- ---------
TOTAL CURRENT LIABILITIES 168,874 147,994
LONG-TERM DEBT 543,092 456,365
DEFERRED FEDERAL INCOME TAXES AND OTHER CREDITS 105,749 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 257,975 257,773
Retained earnings 464,558 440,645
Cost of common shares in treasury (90,070) (90,935)
---------- ---------
657,530 632,550
---------- ---------
$ 1,675,245 $ 1,531,053
========== =========
</TABLE>
See notes to consolidated financial statements.
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(Unaudited)
CONSOLIDATED STATEMENTS OF INCOME
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended Six months ended
November 30, November 30,
- -------------------------------------------------------------------------------------------------
In thousands except per share 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 317,240 $ 280,402 $ 629,135 $ 579,510
COSTS AND EXPENSES (INCOME)
Cost of products sold 265,940 221,995 519,483 450,439
Selling, general and administrative 27,420 25,262 55,739 50,326
Interest 9,786 2,805 13,161 7,096
Other income (4,816) (6,672) (5,736) (9,096)
------- ------- ------- --------
298,330 243,390 582,647 498,765
------- ------- ------- --------
INCOME BEFORE THE FOLLOWING ITEMS 18,910 37,012 46,488 80,745
Income taxes 6,451 12,430 15,847 27,169
------- ------- ------- --------
12,459 24,582 30,641 53,576
Dividends on preferred securities
- net of tax (1,787) (1,788) (3,575) (3,496)
------- ------- ------- --------
NET INCOME $ 10,672 $ 22,794 $ 27,066 $ 50,080
======= ======= ======= =======
BASIC
Average shares 21,162 21,341 21,146 21,331
Earnings per share $ .51 $ 1.07 $ 1.29 $ 2.35
======= ======= ======= =======
DILUTED
Average shares 21,608 24,513 24,489 24,669
Earnings per share $ .50 $ 1.01 $ 1.26 $ 2.18
======= ======= ======= =======
Cash dividends $ .075 $ .075 $ .15 $ .15
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Six months ended
November 30,
- -------------------------------------------------------------------------------------------------
In thousands 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 27,066 $ 50,080
Gain on disposal of assets (970) (2,662)
Non-cash items
Depreciation, depletion and amortization 47,149 38,589
Deferred taxes 8,320 (1,006)
Other - net 6,413 2,114
Changes in operating assets and liabilities
Notes and accounts receivable (14,760) 21,894
Inventories and prepaid expenses 2,528 (66,526)
Accounts payable and accrued liabilities 23,493 918
Real estate and investments 378 3,493
--------- ---------
Net cash provided by operations 99,617 46,894
INVESTING ACTIVITIES
Capital expenditures - expansions (162,588) (182,020)
Capital expenditures - other (26,831) (55,050)
Proceeds from disposal of assets 2,142 3,164
Other - net (3,841) (3,503)
--------- ---------
Net cash used by investing (191,118) (237,409)
FINANCING ACTIVITIES
Proceeds from long-term borrowing 141,825 113,598
Net proceeds from issuance of subsidiary preferred securities -- 193,599
Debt retirements (55,157) (119,860)
Purchase of treasury shares (129) (154)
Common dividends paid (3,153) (3,183)
Other - net (724) (1,275)
--------- ---------
Net cash provided by financing 82,662 182,725
--------- ---------
Decrease in cash (8,839) (7,790)
Cash at beginning of period 17,652 16,718
--------- ---------
Cash at end of period $ 8,813 $ 8,928
========= =========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Texas Industries, Inc. ("TXI" or the "Company"), is a leading supplier of
construction materials through two business segments: cement, aggregate and
concrete products (the "CAC" segment) and structural steel and specialty bar
products (the "Steel" segment). Through the CAC segment, the Company produces
and sells cement, stone, sand and gravel, expanded shale and clay aggregate and
concrete products from facilities concentrated in Texas, Louisiana, and
California, with several products marketed throughout the United States.
Through its Steel segment, the Company produces and sells structural steel,
specialty bar products, merchant bar-quality rounds, reinforcing bar and
channels for markets in North America and, under certain market conditions,
Europe and Asia.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended November 30,
1999, 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 $31.0 million at November 30, 1999 and $28.1 million
at May 31, 1999. Goodwill resulting from the acquisitions of Chaparral Steel
Company and Riverside Cement Company, totaling $146.8 million at November 30,
1999 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 $31.9 million at November 30, 1999 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 Six months ended
November 30, November 30,
-------------------------------------------------------------------------------------------
In thousands except per share 1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Earnings:
Net income $10,672 $22,794 $27,066 $50,080
Contingent price amortization 58 58 116 116
------- ------- ------- -------
Basic earnings 10,730 22,852 27,182 50,196
Dividends on preferred securities - net of tax -- 1,788 3,575 3,496
------- ------- ------- -------
Diluted earnings $10,730 $24,640 $30,757 $53,692
======= ======= ======= =======
Shares:
Weighted average shares outstanding 21,026 21,220 21,013 21,214
Contingently issuable shares 136 121 133 117
------- ------- ------- -------
Basic weighted-average shares 21,162 21,341 21,146 21,331
Preferred securities -- 2,889 2,889 2,889
Stock option and award dilution 446 283 454 449
------- ------- ------- -------
Diluted weighted-average shares (1) 21,608 24,513 24,489 24,669
======= ======= ======= =======
Basic earnings per share $ .51 $ 1.07 $ 1.29 $ 2.35
======= ======= ======= =======
Diluted earnings per share $ .50 $ 1.01 $ 1.26 $ 2.18
======= ======= ======= =======
/(1)/ Shares excluded due to antidilutive effect:
Preferred securities 2,889 -- -- --
Stock options 417 612 418 483
</TABLE>
WORKING CAPITAL
Working capital totaled $143.2 million at November 30, 1999, compared to $162.4
million at May 31, 1999.
Notes and accounts receivable of $54.1 million at November and $43.1 million at
May are presented net of allowances for doubtful receivables of $3.6 million at
November 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 November 30, 1999 and May 31, 1999.
Fees are variable and follow commercial paper rates. Fees and expenses included
in selling, general and administrative expense amounted to $1.5 million and $2.9
million for the three-month and six-month periods ended November 30, 1999,
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 November May
------------------------------------------------------
Finished products $ 66,665 $ 95,658
Work in process 38,621 37,989
Raw materials and supplies 119,402 97,211
-------- --------
$224,688 $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 $6.0 million at November and May.
LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
In thousands November May
----------------------------------------------------------------------------------
<S> <C> <C>
Revolving credit facility maturing in 2004, interest rates
average 6.76% $152,500 $ 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 6.38% (75% of prime) 6,235 6,575
Other, maturing through 2009, interest rates
from 8% to 10% 3,171 3,355
-------- --------
552,209 465,533
Less current maturities 9,117 9,168
-------- --------
$543,092 $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 $206.4 million.
The Company has available a bank-financed $450 million long-term revolving
credit facility. In addition to the $152.5 million currently outstanding under
this facility, $114.5 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 November 30, 1999.
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 six-month periods presented was $20.4
million in 1999 and $19.9 million in 1998. Interest capitalized totaled $7.5
million and $8.7 million in the 1999 and 1998 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 November May
--------------------------------------------------------------
Shares authorized 40,000 40,000
Shares outstanding at end of period 21,040 20,991
Shares held in treasury 4,027 4,076
Shares reserved for stock options and other 3,809 3,853
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<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 six-month period ended November 30,
1999, follows:
--------------------------------------------------------------------------
Weighted Average
Shares Under Option Option Price
--------------------------------------------------------------------------
Outstanding at June 1 2,055,123 $28.31
Granted 15,000 37.13
Exercised (51,290) 21.98
Cancelled (48,850) 32.11
--------- ------
Outstanding at November 30 1,969,983 $28.44
========= ======
At November 30, 1999, there were 895,353 shares exercisable and 1,674,830 shares
available for future grants. Outstanding options expire on various dates to
October 19, 2009.
INCOME TAXES
Federal income taxes for the interim periods ended November 30, 1999 and 1998,
have been included in the accompanying financial statements on the basis of an
estimated annual rate. The estimated annualized tax rate is 34.0% for 1999
compared with 33.6% for 1998. 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 $2.2
million and $23.0 million in the six-month periods ended November 30, 1999 and
1998, 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 November 30, 1999 and the related
condensed consolidated statements of income for the three-month and six-month
periods ended November 30, 1999 and 1998 and the condensed consolidated
statements of cash flows for the six-month periods ended November 30, 1999 and
1998. These financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Texas Industries, Inc. and
subsidiaries as of May 31, 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
----------------------
December 14, 1999
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 six-
month periods ended November 30, 1999 to the three-month and six-month periods
ended November 30, 1998.
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
<TABLE>
<CAPTION>
Three months ended Six months ended
November 30, November 30,
---------------------------------------------------------------------------
In thousands 1999 1998 1999 1998
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL SALES
Cement $ 77,936 $ 69,605 $158,987 $145,749
Ready-mix 66,908 57,708 142,277 123,426
Stone, sand & gravel 26,068 23,096 54,691 50,449
Structural mills 116,874 100,219 216,544 189,527
Bar mill 28,108 25,762 53,135 62,732
UNITS SHIPPED
Cement (tons) 1,027 915 2,064 1,916
Ready-mix (cubic yards) 1,053 956 2,231 2,076
Stone, sand & gravel (tons) 4,749 4,139 9,907 9,453
Structural mills (tons) 356 257 696 469
Bar mill (tons) 84 72 159 175
NET SALES
Cement $ 58,914 $ 50,891 $118,692 $106,393
Ready-mix 66,793 57,539 142,007 123,068
Stone, sand & gravel 17,952 16,382 38,447 36,562
Other products 24,775 25,399 53,007 53,065
-------- -------- -------- --------
TOTAL CAC 168,434 150,211 352,153 319,088
Structural mills 116,874 100,219 216,544 189,527
Bar mill 28,108 25,762 53,135 62,732
Other 3,824 4,210 7,303 8,163
-------- -------- -------- --------
TOTAL STEEL 148,806 130,191 276,982 260,422
-------- -------- -------- --------
TOTAL NET SALES $317,240 $280,402 $629,135 $579,510
======== ======== ======== ========
</TABLE>
-13-
<PAGE>
Business Segments-Continued
<TABLE>
<CAPTION>
Three months ended Six months ended
November 30, November 30,
----------------------------------------------------------------------------------------------------------------
In thousands 1999 1998 1999 1998
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CAC OPERATIONS
Gross profit $ 61,103 $ 55,393 $ 130,657 $ 119,095
Less: Depreciation, depletion &
amortization 9,656 9,272 19,405 18,227
Selling, general & administrative 11,315 9,323 22,669 18,687
Other income (1,119) (2,565) (1,420) (3,105)
------- -------- -------- --------
OPERATING PROFIT 41,251 39,363 90,003 85,286
STEEL OPERATIONS
Gross profit 14,650 21,274 23,464 45,976
Less: Depreciation & amortization 15,857 10,050 27,223 19,877
Selling, general & administrative 6,814 7,151 12,570 15,530
Other income (2,503) (416) (2,672) (916)
------- -------- -------- --------
OPERATING PROFIT (LOSS) (5,518) 4,489 (13,657) 11,485
------- -------- -------- --------
TOTAL OPERATING PROFIT 35,733 43,852 76,346 96,771
CORPORATE RESOURCES
Other income 1,194 3,691 1,644 5,075
Less: Depreciation & amortization 286 234 521 485
Selling, general & administrative 7,945 7,492 17,820 13,520
------- -------- -------- --------
(7,037) (4,035) (16,697) (8,930)
INTEREST EXPENSE (9,786) (2,805) (13,161) (7,096)
------- -------- -------- --------
INCOME BEFORE TAXES & OTHER ITEMS $18,910 $ 37,012 $ 46,488 $ 80,745
======= ======== ======== ========
</TABLE>
RESULTS OF OPERATIONS
Net Sales. Consolidated net sales for the current quarter were $317.2 million,
an increase of $36.8 million from the prior year quarter. Consolidated net sales
for the current six-month period were $629.1 million, an increase of $49.6
million from the prior year period. Sales for both CAC and Steel segments
improved.
CAC sales were up from the prior year 12% for the quarter and 10% for the six
months. Strong construction activity in the Company's market areas continue to
sustain demand for building materials. Total cement sales for the current
quarter were 12% above the prior year quarter on 12% higher shipments. Total
cement sales for the current six months were 9% above the prior year period on
8% higher shipments. Average trade prices increased 3% in the current periods
over the prior year periods. Ready-mix sales for the current quarter increased
16% from the prior year quarter on 10% higher volume and 5% higher average trade
prices. Aggregate sales for the current quarter were 13% above the prior year
quarter due to a 15% increase in shipments on slightly lower average trade
prices.
Steel sales were up from the prior year 14% for the quarter and 6% for the six
months. Shipments in the current quarter were 34% higher than the prior year
quarter with realized prices 14% lower than the prior year period but 10% above
the August 1999 quarter. There continues to be a strong demand for structural
products in North America. Structural steel prices increased 12% in the current
quarter from the August 1999 quarter on 5% higher shipments. Price increases
announced in August and September positively impacted sales. Additional
structural product price increases announced in November will continue the price
recovery. Bar mill sales in the current quarter increased 9% with shipments up
15%. Average prices were comparable to those of the August 1999 quarter but 5%
below those of the prior year period.
-14-
<PAGE>
Operating Costs. Consolidated cost of products sold including depreciation,
depletion and amortization for the current quarter was $265.9 million, an
increase of $43.9 million from the prior year quarter. Costs for the current six
months were $519.5 million, an increase of $69.0 million from the prior year
period. CAC costs increased from the prior year $12.9 million in the quarter and
$22.6 million in the six months due primarily to increased cement and ready-mix
shipments at higher unit costs and increased aggregate production. Steel costs
increased from the prior year $31.0 million in the quarter and $46.4 million in
the six months 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 $2.0 million in the quarter and $4.0
million in the six months due primarily to higher incentive accruals. Steel
expense decreased $300,000 in the quarter and $3.0 million in the six months due
in part to lower selling expense and incentive accruals.
Operating Profit. Operating profit of $35.7 million for the current quarter was
$8.1 million lower than the prior year period. Operating profit of $76.3 million
for the current six months was $20.4 million lower than the prior year period.
CAC operating profit was up 5% for the quarter and 6% for the six months due to
increased cement and ready-mix shipments. Cement profit margins declined
slightly as increased selling prices were offset by higher unit costs. Steel
incurred an operating loss of $5.5 million for the current quarter compared to
an operating profit of $4.5 million for the prior year period. This reflects the
decline in structural beam prices experienced over the past year plus higher
costs of manufacturing in the recent start-up of the Virginia plant. However,
structural steel price increases beginning in August and September contributed
to a $2.6 million improvement over the August 1999 quarter.
Steel profits in the current quarter included $2.0 million in income from an
insurance settlement. Profits in the February 2000 quarter will include
approximately $6.3 million in income from the settlement in December 1999 of the
Company's litigation against certain graphite electrode suppliers.
The Company's new Virginia steel plant began operations in August 1999. It is
anticipated that start-up costs and higher than normal unit operating costs due
to lower production as the plant is brought on-line could adversely affect near
term results.
Corporate Resources. Selling, general and administrative expenses including
depreciation and amortization increased $500,000 for the quarter and $4.3
million for the six months due to the ongoing costs of the Company's March 1999
agreement to sell receivables, higher real estate operating expenses and
retirement accruals, partially offset by lower incentive accruals. Other income
decreased $2.5 million in the current quarter and $3.4 million in the current
six months due to lower income from interest and the Company's real estate
operations.
Interest Expense. Interest expense for the current six month period at $13.2
million was $6.1 million higher than the prior year period. The increase was due
to a $4.9 million increase in interest resulting from higher average outstanding
debt and a $1.2 million reduction in interest capitalized.
Income Taxes. The Company's current effective tax rate is estimated at 34.0%
compared to 33.6% 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 in the amount of $3.6 million for the current six-month
period net of tax benefit were incurred due to the issuance of such securities
in June 1998.
-15-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $99.6 million, an increase of
$52.7 million over the prior year period primarily due to changes in working
capital items and higher depreciation, depletion and amortization expense that
was partially offset by lower net income. Increased Steel shipments and prices
increased receivables and decreased inventories. Accounts payable and accrued
expenses increased primarily due to the timing of accounts payable payments at
the end of the November 1999 quarter. During the 1998 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 $191.1 million compared to $237.4
million during the prior year period, consisting principally of capital
expenditure items. Historically, capital expenditures have consisted of normal
replacement and technological upgrades of existing equipment. The fiscal year
2000 capital expenditure budget for such equipment is estimated at $120 million.
Expenditures for these activities were $26.8 million in the current six-month
period compared to $55.1 million in the prior year period. Capital expenditures
for plant expansions included $94.6 million in the current six-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, $68.0 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 $82.7 million, compared to $182.7
million during the prior year period. During the current six-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 November 30,1999, $152.5 million was outstanding under the credit
facility and an additional $114.5 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 shares 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 expenditures 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 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of the Shareholders held October 19, 1999, shareholders
elected as Directors of the Company, Robert Alpert, Eugenio Clariond Reyes and
Elizabeth C. Williams to terms expiring in 2002. Votes cast to elect Robert
Alpert were 18,595,960 affirmative, 317,081 opposed and 2,096,085 abstained or
non-voted. Votes cast to elect Eugenio Clariond Reyes were 14,546,012
affirmative, 4,367,029 opposed and 2,096,085 abstained or non-voted. Votes cast
to elect Elizabeth C. Williams were 18,600,569 affirmative, 312,472 opposed and
2,096,085 abstained or non-voted. Terms of office expire for the continuing
directors John M. Belk, Gordon E. Forward and James M. Hoak, Jr. in 2000 and for
the continuing directors Gerald R. Heffernan, Robert D. Rogers and Ian
Wachtmeister in 2001.
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 November 30, 1999 Consolidated Financial Statements and
is qualified in its entirety by reference to such financial statements.
The remaining exhibits have been omitted because they are not applicable or the
information required therein is included elsewhere in the financial statements
or notes thereto.
The Registrant did not file any reports on Form 8-K during the three-month
period ended November 30, 1999.
-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.
January 12, 2000 /s/ Richard M. Fowler
- ---------------- ----------------------
Richard M. Fowler
Vice President - Finance and Chief Financial
Officer
(Principal Financial Officer)
January 12, 2000 /s/ James R. McCraw
- ---------------- --------------------
James R. McCraw
Vice President - Accounting and Information
Services
(Principal Accounting Officer)
-19-
<PAGE>
INDEX TO EXHIBITS
Exhibits Page
15. Letter re: Unaudited Interim Financial Information............. 21
27. Financial Data Schedule......................................... **
** 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 and Post-Effective
Amendment Number 1 to Registration Statement Number 33-53715 on Form S-8 of
Texas Industries, Inc. and in the related Prospectuses of our report dated
December 14, 1999, relating to the unaudited condensed consolidated interim
financial statements of Texas Industries, Inc. which are included in its
Form 10-Q for the quarter ended November 30, 1999.
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
----------------------
January 11, 2000
Dallas, Texas
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED NOVEMBER 30, 1999 CONSOLIDATED FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 8,813
<SECURITIES> 0
<RECEIVABLES> 57,670
<ALLOWANCES> 3,578
<INVENTORY> 224,688
<CURRENT-ASSETS> 312,040
<PP&E> 1,888,307
<DEPRECIATION> 737,714
<TOTAL-ASSETS> 1,675,245
<CURRENT-LIABILITIES> 168,874
<BONDS> 543,092
200,000
0
<COMMON> 25,067
<OTHER-SE> 632,463
<TOTAL-LIABILITY-AND-EQUITY> 1,675,245
<SALES> 629,135
<TOTAL-REVENUES> 629,135
<CGS> 519,483
<TOTAL-COSTS> 519,483
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 729
<INTEREST-EXPENSE> 13,161
<INCOME-PRETAX> 46,488
<INCOME-TAX> 15,847
<INCOME-CONTINUING> 27,066
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,066
<EPS-BASIC> 1.29
<EPS-DILUTED> 1.26
</TABLE>
