<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 August 31, 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 October 6, 2000, 21,074,133 shares of Registrant's Common Stock, $1.00
par value, were outstanding.
Page 1 of 20
<PAGE>
INDEX
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
-----------------------------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets -- August 31, 2000 and May 31, 2000........................... 3
Consolidated Statements of Income -- three months ended August 31, 2000
and August 31, 1999.................................................................... 4
Consolidated Statements of Cash Flows -- three months ended August 31, 2000
and August 31, 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 6. Exhibits and Reports on Form 8-K.......................................................... 17
</TABLE>
SIGNATURES
----------
-2-
<PAGE>
CONSOLIDATED BALANCE SHEETS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
August 31, May 31,
------------------------------------------------------------------------------
In thousands 2000 2000
------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 7,951 $ 6,988
Notes and accounts receivable 60,965 79,180
Inventories 249,347 246,910
Deferred taxes and prepaid expenses 37,875 38,926
---------- ----------
TOTAL CURRENT ASSETS 356,138 372,004
OTHER ASSETS
Real estate and other investments 18,333 18,572
Goodwill and other intangibles 151,716 152,309
Other 43,352 43,712
---------- ----------
213,401 214,593
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 193,458 190,671
Buildings 91,195 90,160
Machinery and equipment 1,474,806 1,470,369
Construction in progress 301,802 256,594
---------- ----------
2,061,261 2,007,794
Less allowances for depreciation 801,760 778,711
---------- ----------
1,259,501 1,229,083
---------- ----------
$1,829,040 $1,815,680
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 98,347 $ 94,077
Accrued interest, wages and other items 60,134 64,815
Current portion of long-term debt 9,366 9,373
---------- ----------
TOTAL CURRENT LIABILITIES 167,847 168,265
LONG-TERM DEBT 607,246 623,284
DEFERRED FEDERAL INCOME TAXES AND OTHER CREDITS 131,799 126,105
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 258,338 258,325
Retained earnings 528,245 504,161
Cost of common stock in treasury (89,502) (89,527)
---------- ----------
722,148 698,026
---------- ----------
$1,829,040 $1,815,680
========== ==========
See notes to consolidated financial statements.
</TABLE>
-3-
<PAGE>
(Unaudited)
CONSOLIDATED STATEMENTS OF INCOME
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended
August 31,
--------------------------------------------------------------------------------
In thousands except per share 2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $365,172 $311,895
COSTS AND EXPENSES (INCOME)
Cost of products sold 291,684 253,543
Selling, general and administrative 27,362 28,319
Interest 9,307 3,375
Other income (4,400) (920)
-------- --------
323,953 284,317
-------- --------
INCOME BEFORE THE FOLLOWING ITEMS 41,219 27,578
Income taxes 13,767 9,396
-------- --------
27,452 18,182
Dividends on preferred securities - net of tax (1,788) (1,788)
-------- --------
NET INCOME $ 25,664 $ 16,394
======== ========
BASIC
Average shares 21,211 21,130
Earnings per share $ 1.21 $ .78
======== ========
DILUTED
Average shares 24,425 24,482
Earnings per share $ 1.13 $ .75
======== ========
Cash dividends $ .075 $ .075
======== ========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended
August 31,
-----------------------------------------------------------------------------
In thousands 2000 1999
-----------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $25,664 $ 16,394
Loss (gain) on disposal of assets (392) 2
Non-cash items
Depreciation, depletion and amortization 25,186 21,350
Deferred taxes 7,057 4,465
Other - net 2,633 2,842
Changes in operating assets and liabilities
Receivables sold 40,000 --
Notes and accounts receivable (21,882) (8,967)
Inventories and prepaid expenses (3,104) 5,705
Accounts payable and accrued liabilities (1,185) 7,500
Real estate and investments 239 171
-------- --------
Net cash provided by operations 74,216 49,462
INVESTING ACTIVITIES
Capital expenditures - expansions (22,224) (79,638)
Capital expenditures - other (32,583) (11,794)
Proceeds from disposal of assets 917 127
Other - net (1,275) 101
-------- --------
Net cash used by investing (55,165) (91,204)
FINANCING ACTIVITIES
Proceeds of long-term borrowing 86,600 54,579
Debt retirements (102,648) (20,301)
Purchase of treasury shares -- (110)
Common dividends paid (1,580) (1,575)
Other - net (460) (538)
-------- --------
Net cash provided (used) by financing (18,088) 32,055
-------- --------
Increase (decrease) in cash 963 (9,687)
Cash at beginning of period 6,988 17,652
-------- --------
Cash at end of period $ 7,951 $ 7,965
======== ========
</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, piling
products, specialty bar products, merchant bar-quality rounds, reinforcing bar
and channels for markets in North America.
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 three-month period ended August 31,
2000, are not necessarily indicative of the results that may be expected for the
year ended May 31, 2001. 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, 2000.
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 $35.4 million at August 31, 2000 and $33.9 million
at May 31, 2000. Goodwill resulting from the acquisitions of Chaparral Steel
Company and Riverside Cement Company, totaling $146.1 million at August 31, 2000
and $146.5 million at May 31, 2000 (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, composed primarily of liabilities related to
the Company's retirement plans and deferred compensation agreements, totaled
$31.9 million at August 31, 2000 and $31.5 million at May 31, 2000.
Net Sales. Sales are recognized when products are shipped.
Income Taxes. Accounting for income taxes uses the liability method of
recognizing and classifying deferred income taxes. The Company joins in filing a
consolidated return with its subsidiaries. Current and deferred tax expense is
allocated among the members of the group based on a stand-alone calculation of
the tax of the individual member.
-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. Stock options to
purchase approximately 819,000 shares in 2000 and 419,000 shares in 1999 were
not included in the computation of diluted EPS because the effect would have
been antidilutive.
Basic and Diluted EPS are calculated as follows:
August 31,
-------------------------------------------------------------------
In thousands except per share 2000 1999
-------------------------------------------------------------------
Earnings:
Net income $25,664 16,394
Contingent price amortization 58 58
------- -------
Basic earnings 25,722 16,452
Dividends on preferred securities - net of tax 1,788 1,788
------- -------
Diluted earnings $27,510 $18,240
======= =======
Shares:
Weighted-average shares outstanding 21,071 21,000
Contingently issuable shares 140 130
------- -------
Basic weighted-average shares 21,211 21,130
Preferred securities 2,889 2,889
Stock option and award dilution 325 463
------- -------
Diluted weighted-average shares 24,425 24,482
======= =======
Basic earnings per share $ 1.21 $ .78
======= =======
Diluted earnings per share $ 1.13 $ .75
======= =======
WORKING CAPITAL
Working capital totaled $188.3 million at August 31, 2000 and $203.7 million
at May 31, 2000.
Notes and accounts receivable totaling $61.0 million at August and $79.2
million at May are presented net of allowances for doubtful receivables of $2.9
million at August and $3.3 million at May.
The Company has an agreement to sell, on a revolving basis, an interest in a
defined pool of trade receivables of up to $125 million. The agreement is
subject to annual renewal. The maximum amount outstanding varies based upon the
level of eligible receivables. Fees are variable and follow commercial paper
rates. The sales are reflected as accounts receivable reductions and as
operating cash flows. As collections reduce previously sold interests, new
accounts receivable are customarily sold. The interest sold totaled $125
million at August and $85 million at May. Fees and expenses of $2.1 million and
$1.4 million are included in selling, general and administrative expenses in the
three-month periods ended August 31, 2000 and 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:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
In thousands August May
------------------------------------------------------------------------------------
<S> <C> <C>
Finished products $ 64,780 $ 61,255
Work in process 50,881 51,785
Raw materials and supplies 133,686 133,870
-------- --------
$249,347 $246,910
======== ========
</TABLE>
Inventories are stated at cost (not in excess of market) with a majority of
inventories using the last-in first-out method (LIFO). If the average cost
method (which approximates current replacement cost) had been used, inventory
values would have been higher by $7.8 million at August and May.
LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
In thousands August May
------------------------------------------------------------------------------------
<S> <C> <C>
Revolving credit facility maturing in 2004, interest rates
average 8.13% $224,000 $240,000
Senior notes
Notes due through 2017, interest rates average 7.28% 200,000 200,000
Notes due through 2008, interest rates average 7.28% 75,000 75,000
Notes due through 2004, interest rates average 10.2% 32,000 32,000
Variable-rate industrial development revenue bonds
Bonds maturing in 2028, interest rate approximately 4.5% 50,000 50,000
Bonds maturing in 2029, interest rate approximately 4.5% 25,000 25,000
Bonds maturing in 2029, interest rate approximately 4.5%-net 303 303
Pollution control bonds, due through 2007, interest
rate 7.13% (75% of prime) 5,895 5,895
Other, maturing through 2009, interest rates
from 7.5% to 10% 4,414 4,459
-------- --------
616,612 632,657
Less current maturities 9,366 9,373
-------- --------
$607,246 $623,284
======== ========
</TABLE>
Annual maturities of long-term debt for each of the five succeeding years are
$9.4, $9.2, $9.2, $278.3 and $41.2 million.
The Company has available a bank-financed $450 million long-term revolving
credit facility. In addition to the $224.0 million currently outstanding under
this facility, $108.9 million has been utilized to support letters of credit.
The Company may select at the time of borrowing an interest rate at either prime
or the applicable margin above LIBOR. Commitment fees at a current annual rate
of .375% are paid on the unused portion of this facility.
On May 18, 1999, the Company issued variable rate industrial development bonds
in the amount of $20.5 million of which $303,000 was funded as of August 31,
2000. The proceeds are available to reimburse certain 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 fixed charges,
which includes cash dividends on common stock, is limited based on the ratio of
earnings before interest, taxes, depreciation and amortization to fixed charges.
At August 31, 2000, additional fixed charges in the amount of $67.0 million
could have been incurred. The Company is in compliance with all loan covenant
restrictions.
The amount of interest paid for the three-month periods presented was $7.8
million in 2000 and $2.5 million in 1999. Interest capitalized totaled $3.9
million and $6.6 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 August May
-------------------------------------------------------------
Shares authorized 40,000 40,000
Shares outstanding at end of period 21,071 21,070
Shares held in treasury 3,996 3,997
Shares reserved for stock options and other 3,786 3,787
-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. 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 three-month period ended August 31,
2000, follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Weighted Average
Shares Under Option Option Price
-------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 1 2,162,125 $29.86
Granted 10,000 31.00
Cancelled (10,490) 33.34
--------- ------
Outstanding at August 31 2,161,635 $29.85
========= ======
</TABLE>
At August 31, 2000, there were 1,221,175 shares exercisable and 1,458,950
shares available for future grants. Outstanding options expire on various dates
to July 13, 2010.
INCOME TAXES
Federal income taxes for the interim periods ended August 31, 2000 and 1999,
have been included in the accompanying financial statements on the basis of an
estimated annual rate. The estimated annualized tax rate is 33.3% for 2000
compared to 34.0% 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 $8.9 million and
$654,000 in the three-month periods ended August 31, 2000 and 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 and the
information currently available to it, the Company believes that such claims
will not have a material impact on its financial condition or results of
operations. Despite the Company's compliance and experience, it is possible
that the Company could be held liable for future charges which might be material
but are not currently known or estimable. In addition, changes in federal or
state laws, regulations or requirements or discovery of currently unknown
conditions could require additional expenditures by the Company.
The Company and subsidiaries are defendants in lawsuits which arose in the
normal course of business. In management's judgment (based on the opinion of
counsel) the ultimate liability, if any, from such legal proceedings will not
have a material effect on the consolidated financial position of the Company.
Information regarding the Company's litigation against certain graphite
electrode suppliers is presented on page 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 August 31, 2000 and the related
condensed consolidated statements of income and cash flows for the three-month
periods ended August 31, 2000 and 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, 2000, 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 12, 2000, 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, 2000, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
/s/ Ernst & Young LLP
---------------------
September 19, 2000
-12-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of operations and financial condition for the three-month period
ended August 31, 2000 to the three-month period ended August 31, 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, piling products,
specialty bar products, merchant bar-quality rounds, reinforcing bar and
channels.
Corporate resources include administration, financial, legal, environmental,
human resources and real estate activities that are not allocated to operations
and are excluded from operating profit.
Three months ended
August 31,
------------------------------------------------------------
In thousands 2000 1999
------------------------------------------------------------
TOTAL SALES
Cement $ 90,818 $ 81,051
Ready-mix 70,319 75,369
Stone, sand & gravel 31,434 28,623
Structural mills 139,942 99,670
Bar mill 26,545 25,027
UNITS SHIPPED
Cement (tons) 1,252 1,037
Ready-mix (cubic yards) 1,162 1,178
Stone, sand & gravel (tons) 5,764 5,158
Structural mills (tons) 362 340
Bar mill (tons) 77 75
NET SALES
Cement $ 70,226 $ 59,778
Ready-mix 70,202 75,214
Stone, sand & gravel 21,813 20,495
Other products 30,996 28,232
------- -------
TOTAL CAC 193,237 183,719
Structural mills 139,942 99,670
Bar mill 26,545 25,027
Other 5,448 3,479
------- -------
TOTAL STEEL 171,935 128,176
------- -------
TOTAL NET SALES $ 365,172 $ 311,895
======= =======
-13-
<PAGE>
Three months ended
August 31,
----------------------------------------------------------------
In thousands 2000 1999
----------------------------------------------------------------
CAC OPERATIONS
Gross profit $ 64,391 $ 69,554
Less: Depreciation, depletion &
amortization 9,683 9,749
Selling, general & administrative 12,007 11,354
Other income (520) (301)
------ ------
OPERATING PROFIT 43,221 48,752
STEEL OPERATIONS
Gross profit 32,973 8,814
Less: Depreciation & amortization 15,230 11,366
Selling, general & administrative 5,986 5,756
Other income (1,416) (169)
------ ------
OPERATING PROFIT (LOSS) 13,173 (8,139)
------ ------
TOTAL OPERATING PROFIT 56,394 40,613
CORPORATE RESOURCES
Other income 2,464 450
Less: Depreciation & amortization 273 235
Selling, general & administrative 8,059 9,875
------ ------
(5,868) (9,660)
INTEREST EXPENSE (9,307) (3,375)
------ ------
INCOME BEFORE TAXES & OTHER ITEMS $ 41,219 $ 27,578
======== ========
RESULTS OF OPERATIONS
Net Sales. Consolidated net sales for the August 2000 quarter were $365.2
million compared to $311.9 million for the prior year period. CAC sales at
$193.2 million were up 5%. Strong construction activity continues to sustain
demand for building materials in the Company's CAC markets. Total cement sales
increased $9.8 million on 21% higher shipments. Average trade prices were 9%
below the prior year but comparable to the May 2000 quarter. Ready-mix sales
declined $5.1 million with average prices down 5% on slightly lower volumes.
Aggregate sales increased $2.8 million on 12% higher shipments with average
selling prices down 7%. Steel sales at $171.9 million were $43.8 million above
the prior year period. There continues to be strong demand for structural
products in North America. Structural steel sales increased 40% with realized
prices 32% higher than the prior year period and 3% above the May 2000 quarter.
Bar mill sales improved as prices were 2% above the prior year period on
somewhat higher shipments.
Operating Costs. Consolidated cost of products sold including depreciation,
depletion and amortization was $291.7 million, an increase of $38.1 million over
the prior year period. CAC costs were $137.5 million, an increase of $14.7
million, due to increased cement shipments at higher unit costs. Steel costs of
$154.2 million increased $23.5 million on increased shipments and higher unit
production costs at the Virginia plant because of start-up inefficiencies.
CAC selling, general and administrative expenses including depreciation and
amortization at $13.0 million increased $600,000 over the prior year period
primarily due to increased administrative expense allocated to operations,
offset by lower incentive accruals. Steel expenses at $6.0 million were $200,000
above the prior year period.
-14-
<PAGE>
Operating Profit. Operating profit of $56.4 million for the August 2000
quarter was 39% above the prior year period. CAC operating profit declined $5.5
million. Cement profit margins declined on lower average selling prices due
primarily to the impact of imports on supply. Steel operating profit increased
$21.3 million reflecting the improvement in structural beam prices experienced
over the past year. However, higher costs of manufacturing due to the start-up
of the Virginia plant adversely impacted operating profits and could continue to
affect near term results.
Corporate Resources. Selling, general and administrative expenses including
depreciation and amortization at $8.3 million decreased $1.8 million as lower
incentive accruals offset increased costs associated with the Company's
agreement to sell receivables. Other income increased $2.0 million due to higher
real estate income.
Interest Expense. Interest expense at $9.3 million was $5.9 million higher
than the prior year period. The increase was due to a $3.2 million increase in
interest resulting from higher average outstanding debt and a $2.7 million
decrease in interest capitalized.
Income Taxes. The Company's current effective tax rate is estimated at 33.3%
compared to 34.0% 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 $1.8 million net of tax benefit were
incurred in each period.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $74.2 million, an increase of
$24.8 million over the prior year period. Sales of receivables provided $40
million in operating cash flow in the current period. Higher net income,
deferred taxes and depreciation, depletion and amortization expense were offset
by changes in working capital items. Current CAC sales were up 8% from the May
2000 quarter increasing receivables $17.0 million and reducing inventories $5.1
million. Steel shipments declined 10% from the May 2000 quarter increasing
inventories $7.5 million. Account payables and accrued expenses decreased $1.2
million. During the prior year period, CAC sales were up 4% from the May 1999
quarter increasing receivables $6.6 million. Inventories grew $4.2 million on
increased production. Steel shipments increased 11% over the May 1999 quarter,
increasing receivables $2.7 million and reducing inventories $13.8 million.
Net cash used by investing activities was $55.2 million, compared to $91.2
million during the prior year period, consisting principally of capital
expenditure items. Capital expenditures for normal replacement and technological
upgrades of existing equipment and expansion of the Company's operations
excluding major plant expansions were $32.6 million compared to $11.8 million in
the prior year period. The fiscal year 2001 capital expenditure budget for these
activities is estimated to be in the range of $120 to $150 million. Capital
expenditures for plant expansions were $22.2 million incurred for the expansion
of the Company's Midlothian, Texas cement plant. Completion is expected by the
fall of 2000. The project will expand the production of the plant from 1.3 to
2.8 million tons per year and require a capital commitment of approximately $250
million. During the prior year period, in addition to $39.4 million incurred for
the Midlothian cement plant expansion, $40.2 million was incurred towards the
completion of the Company's Virginia steel facility.
Net cash used by financing activities was $18.1 million, compared to $32.1
million provided during the prior year period. The Company has a $450 million
revolving credit facility that expires in March 2004. At August 31, 2000, $224.0
million was outstanding under the credit facility and an additional $108.4
million had been utilized to support letters of credit. The Company also has
available $20.2 million from industrial development bonds issued in May 1999 to
reimburse construction costs at its Midlothian cement plant. 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 cash
from operations and long-term borrowing. Maintenance capital expenditures and
working capital are funded by cash from operations. The Company expects cash
from operations, 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.
-15-
<PAGE>
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, UCAR and its affiliates, VAW
Aluminum Aktiengesellschaft, and VAW Carbon GMBH have settled with Chaparral and
have been removed from the action. In related criminal actions, two of the
Defendants have pled guilty to criminal violations of the U.S. antitrust laws
and have paid fines; and a third Defendant has announced that it has agreed to
cooperate with the U.S. Department of Justice investigation into the graphite
electrode industry in exchange for immunity from criminal prosecution for it and
some of its executives. For these reasons, although the Company's action is
still in its discovery stages, the Company believes that it should, subject to
inherent uncertainties of litigation, prevail in its claims against the
remaining Defendants.
Environmental Matters
The Company is subject to federal, state and local environmental laws and
regulations concerning, among other matters, air emissions, furnace dust
disposal and wastewater discharge. The Company believes it is in substantial
compliance with applicable environmental laws and regulations, however, from
time to time the Company receives claims from federal and state environmental
regulatory agencies and entities asserting that the Company is or may be liable
for environment cleanup costs and related damages. Based on its experience and
the information currently available to it, the Company believes that such claims
will not have a material impact on its financial condition or results of
operations. Despite the Company's compliance and experience, it is possible that
the Company could be held liable for future charges which might be material but
are not currently known or estimable. In addition, changes in federal or state
laws, regulations or requirements or discovery of currently unknown conditions
could require additional expenditures by the Company.
Market Risk
The Company does not enter into derivatives or other financial instruments for
trading or speculative purposes. Because of the short duration of the Company's
investments, changes in market interest rates would not have a significant
impact on their fair value. The current fair value of the Company's long-term
debt, including current maturities, does not exceed its carrying value. Market
risk, when estimated as the potential increase in fair value resulting from a
hypothetical 10% decrease in the Company's weighted average long-term borrowing
rate, would not have a significant impact on the carrying value of long-term
debt. Expected maturity dates and average interest rates of long-term debt are
essentially unchanged from May 31, 2000.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
Certain statements contained in this quarterly report are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to risks, uncertainties and other factors,
which could cause actual results to differ materially from future results
expressed or implied by such forward-looking statements. Potential risks and
uncertainties include, but are not limited to, the impact of competitive
pressures and changing economic and financial conditions on the Company's
business, construction activity in the Company's markets, abnormal periods of
inclement weather, changes in the cost of raw materials, fuel, and energy, and
the impact of environmental laws and other regulations. For further information
refer to the Company's annual report on Form 10-K for the year ended May 31,
2000.
-16-
<PAGE>
PART II. OTHER INFORMATION
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
The Financial Data Schedule contains summary financial information extracted
from the Registrant's Unaudited August 31, 2000 Consolidated Financial
Statements and is qualified in its entirety by reference to such financial
statements.
The remaining exhibits have been omitted because they are not applicable or
the information required therein is included elsewhere in the financial
statements or notes thereto.
The Registrant did not file any reports on Form 8-K during the three-month
period ended August 31, 2000.
-17-
<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.
October 11, 2000 /s/ Richard M. Fowler
---------------- ----------------------
Richard M. Fowler
Executive Vice President - Finance and Chief
Financial Officer
(Principal Financial Officer)
October 11, 2000 /s/ James R. McCraw
---------------- --------------------
James R. McCraw
Vice President - Accounting and Information
Services
(Principal Accounting Officer)
-18-
<PAGE>
INDEX TO EXHIBITS
Exhibits Page
15. Letter re: Unaudited Interim Financial Information................... 20
27. Financial Data Schedule.............................................. **
** Electronically filed only.
-19-
