<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, 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 January 8, 2001, 20,749,633 shares of Registrant's Common Stock,
$1.00 par value, were outstanding.
Page 1 of 21
<PAGE>
INDEX
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
-----------------------------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - November 30, 2000 and May 31, 2000........................ 3
Consolidated Statements of Income -- three months and six months ended
November 30, 2000 and November 30, 1999............................................... 4
Consolidated Statements of Cash Flows -- six months ended November 30, 2000
and November 30, 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 4. Submission of Matters to a Vote of Security Holders..................................... 18
Item 6. Exhibits and Reports on Form 8-K........................................................ 18
SIGNATURES
----------
</TABLE>
-2-
<PAGE>
CONSOLIDATED BALANCE SHEETS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
November 30, May 31,
--------------------------------------------------------------------------------
In thousands 2000 2000
--------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 15,169 $ 6,988
Notes and accounts receivable 31,501 79,180
Inventories 269,477 246,910
Deferred taxes and prepaid expenses 53,483 38,926
---------- -----------
TOTAL CURRENT ASSETS 369,630 372,004
OTHER ASSETS
Real estate and other investments 16,723 18,572
Goodwill and other intangibles 150,431 152,309
Other 48,554 43,712
---------- -----------
215,708 214,593
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 189,203 190,671
Buildings 92,860 90,160
Machinery and equipment 1,482,740 1,470,369
Construction in progress 314,605 256,594
---------- -----------
2,079,408 2,007,794
Less allowances for depreciation 823,805 778,711
---------- -----------
1,255,603 1,229,083
---------- -----------
$1,840,941 $ 1,815,680
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 83,985 $ 94,077
Accrued interest, wages and other items 54,466 64,815
Current portion of long-term debt 9,362 9,373
---------- -----------
TOTAL CURRENT LIABILITIES 147,813 168,265
LONG-TERM DEBT 634,838 623,284
DEFERRED FEDERAL INCOME TAXES AND OTHER CREDITS 134,501 126,105
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 258,377 258,325
Retained earnings 536,596 504,161
Cost of common shares in treasury (96,251) (89,527)
---------- -----------
723,789 698,026
---------- -----------
$1,840,941 $ 1,815,680
========== ===========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
(Unaudited)
CONSOLIDATED STATEMENTS OF INCOME
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended Six months ended
November 30, November 30,
--------------------------------------------------------------------------------------
In thousands except per share 2000 1999 2000 1999
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $300,572 $317,240 $665,744 $629,135
COSTS AND EXPENSES (INCOME)
Cost of products sold 256,386 265,940 548,070 519,483
Selling, general and administrative 25,061 27,420 52,423 55,739
Interest 9,003 9,786 18,310 13,161
Other income (6,694) (4,816) (11,094) (5,736)
-------- -------- -------- --------
283,756 298,330 607,709 582,647
-------- -------- -------- --------
INCOME BEFORE THE FOLLOWING ITEMS 16,816 18,910 58,035 46,488
Income taxes 5,097 6,451 18,864 15,847
-------- -------- -------- --------
11,719 12,459 39,171 30,641
Dividends on preferred securities - net of tax (1,787) (1,787) (3,575) (3,575)
-------- -------- -------- --------
NET INCOME $ 9,932 $ 10,672 $ 35,596 $ 27,066
======== ======== ======== ========
BASIC
Average shares 21,141 21,162 21,176 21,146
Earnings per share $ .47 $ .51 $ 1.69 $ 1.29
======== ======== ======== ========
DILUTED
Average shares 21,345 21,608 24,329 24,489
Earnings per share $ .47 $ .50 $ 1.61 $ 1.26
======== ======== ======== ========
Cash dividends $ .075 $ .075 $ .15 $ .15
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
Six months ended
November 30,
---------------------------------------------------------------------
In thousands 2000 1999
---------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 35,596 $ 27,066
Gain on disposal of assets (4,299) (970)
Non-cash items
Depreciation, depletion and amortization 50,599 47,149
Deferred taxes 9,221 8,320
Other - net 2,695 6,413
Changes in operating assets and liabilities
Receivables sold 34,548 --
Notes and accounts receivable 13,032 (14,760)
Inventories and prepaid expenses (35,904) 2,528
Accounts payable and accrued liabilities (22,783) 23,493
Real estate and investments 1,849 378
--------- ---------
Net cash provided by operations 84,554 99,617
INVESTING ACTIVITIES
Capital expenditures - expansions (31,487) (162,588)
Capital expenditures - other (49,377) (26,831)
Proceeds from disposal of assets 10,838 2,142
Other - net (6,662) (3,841)
--------- ---------
Net cash used by investing (76,688) (191,118)
FINANCING ACTIVITIES
Proceeds from long-term borrowing 209,400 141,825
Debt retirements (197,861) (55,157)
Purchase of treasury shares (6,189) (129)
Common dividends paid (3,161) (3,153)
Other - net (1,874) (724)
--------- ---------
Net cash provided by financing 315 82,662
--------- ---------
Increase (decrease) in cash 8,181 (8,839)
Cash at beginning of period 6,988 17,652
--------- ---------
Cash at end of period $ 15,169 $ 8,813
========= =========
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 six-month period ended November 30,
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 $36.9 million at November 30, 2000 and $33.9 million
at May 31, 2000. Goodwill resulting from the acquisitions of Chaparral Steel
Company and Riverside Cement Company, totaling $145.2 million at November 30,
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
$29.5 million at November 30, 2000 compared to $31.5 million at May 31, 2000.
Net Sales. Sales are recognized when products are shipped.
-6-
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued
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.
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 Steel Company, 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 2000 1999 2000 1999
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings:
Net income $ 9,932 $10,672 $35,596 $27,066
Contingent price amortization 58 58 116 116
------- ------- ------- -------
Basic earnings 9,990 10,730 35,712 27,182
Dividends on preferred securities - net of tax -- -- 3,575 3,575
------- ------- ------- -------
Diluted earnings $ 9,990 $10,730 $39,287 $30,757
======= ======= ======= =======
Shares:
Weighted average shares outstanding 20,999 21,026 21,035 21,013
Contingently issuable shares 142 136 141 133
------- ------- ------- -------
Basic weighted-average shares 21,141 21,162 21,176 21,146
Preferred securities -- -- 2,889 2,889
Stock option and award dilution 204 446 264 454
------- ------- ------- -------
Diluted weighted-average shares/(1)/ 21,345 21,608 24,329 24,489
======= ======= ======= =======
Basic earnings per share $ .47 $ .51 $ 1.69 $ 1.29
======= ======= ======= =======
Diluted earnings per share $ .47 $ .50 $ 1.61 $ 1.26
======= ======= ======= =======
/(1)/ Shares excluded due to antidilutive effect:
Preferred securities 2,889 2,889 -- --
Stock options 909 417 864 418
</TABLE>
WORKING CAPITAL
Working capital totaled $221.8 million at November 30, 2000, compared to
$203.7 million at May 31, 2000.
Notes and accounts receivable totaling $31.5 million at November and $79.2
million at May are presented net of allowances for doubtful receivables of $3.5
million at November and $3.3 million at May.
-7-
<PAGE>
WORKING CAPITAL-Continued
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 $119.5
million at November and $85 million at May. Fees and expenses of $4.3 million
and $2.9 million are included in selling, general and administrative expenses in
the six-month periods ended November 30, 2000 and 1999, respectively. The
Company, as agent for the purchaser, retains collection and administration
responsibilities for the participating interests of the defined pool.
Inventories are summarized as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
In thousands November May
--------------------------------------------------------------------
<S> <C> <C>
Finished products $ 84,052 $ 61,255
Work in process 48,626 51,785
Raw materials and supplies 136,799 133,870
-------- --------
$269,477 $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 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 7.87% $242,000 $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 10,303 303
Pollution control bonds, due through 2007, interest
rate 7.13% (75% of prime) 5,555 5,895
Other, maturing through 2009, interest rates
from 7.5% to 10% 4,342 4,459
-------- --------
644,200 632,657
Less current maturities 9,362 9,373
-------- --------
$634,838 $623,284
======== ========
</TABLE>
Annual maturities of long-term debt for each of the five succeeding years are
$9.4, $9.2, $9.2, $296.3 and $41.2 million.
-8-
<PAGE>
LONG-TERM DEBT-Continued
The Company has available a bank-financed $450 million long-term revolving
credit facility. In addition to the $242.0 million currently outstanding under
this facility, $109.9 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 bonds in the amount of $20.5 million of
which $10.3 million was funded as of November 30, 2000. The proceeds are
available to reimburse certain construction costs at its Midlothian cement
plant.
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 November 30,2000, additional fixed charges in the amount of $65.8 million
could have been incurred. The Company is in compliance with all loan covenant
restrictions.
The amount of interest paid for the six-month periods presented was $28.8
million in 2000 and $20.4 million in 1999. Interest capitalized totaled $8.1
million and $7.5 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).
-9-
<PAGE>
SHAREHOLDERS' EQUITY
Common stock consists of:
---------------------------------------------------------------
In thousands November May
---------------------------------------------------------------
Shares authorized 40,000 40,000
Shares outstanding at end of period 20,774 21,070
Shares held in treasury 4,293 3,997
Shares reserved for stock options and other 3,779 3,787
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 six-month period ended November 30,
2000, follows:
--------------------------------------------------------------------------
Weighted Average
Shares Under Option Option Price
--------------------------------------------------------------------------
Outstanding at June 1 2,162,125 $29.86
Granted 35,000 29.46
Exercised (7,540) 23.88
Cancelled (11,750) 33.03
--------- ------
Outstanding at November 30 2,177,835 $29.86
========= ======
At November 30, 2000, there were 1,242,335 shares exercisable and 1,435,210
shares available for future grants. Outstanding options expire on various dates
to October 17, 2010.
INCOME TAXES
Federal income taxes for the interim periods ended November 30, 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 32.2% for 2000
compared with 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
state income tax expense. The Company made income tax payments of $13.6 million
and $2.2 million in the six-month periods ended November 30, 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 November 30, 2000 and the related
condensed consolidated statements of income for the three-month and six-month
periods ended November 30, 2000 and 1999, and the condensed consolidated
statements of cash flows for the six-month periods ended November 30, 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
----------------------
December 15, 2000
Dallas, Texas
-12-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of operations and financial condition for the three-month and
six-month periods ended November 30, 2000 to the three-month and six-month
periods ended November 30, 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 Six months ended
November 30, November 30,
-------------------------------------------------------------------------
In thousands 2000 1999 2000 1999
-------------------------------------------------------------------------
TOTAL SALES
Cement $ 78,535 $ 77,936 $169,353 $158,987
Ready-mix 54,985 66,908 125,304 142,277
Stone, sand & gravel 26,400 26,068 57,834 54,691
Structural mills 113,637 116,874 253,579 216,544
Bar mill 23,614 28,108 50,159 53,135
UNITS SHIPPED
Cement (tons) 1,094 1,027 2,346 2,064
Ready-mix (cubic yards) 916 1,053 2,078 2,231
Stone, sand & gravel (tons) 4,786 4,749 10,550 9,907
Structural mills (tons) 303 356 665 696
Bar mill (tons) 69 84 146 159
NET SALES
Cement $ 61,440 $ 58,914 $131,666 $118,692
Ready-mix 54,861 66,793 125,063 142,007
Stone, sand & gravel 18,212 17,952 40,025 38,447
Other products 25,160 24,775 56,156 53,007
-------- -------- -------- --------
TOTAL CAC 159,673 168,434 352,910 352,153
Structural mills 113,637 116,874 253,579 216,544
Bar mill 23,614 28,108 50,159 53,135
Other 3,648 3,824 9,096 7,303
-------- -------- -------- --------
TOTAL STEEL 140,899 148,806 312,834 276,982
-------- -------- -------- --------
TOTAL NET SALES $300,572 $317,240 $665,744 $629,135
======== ======== ======== ========
-13-
<PAGE>
<TABLE>
<CAPTION>
Three months ended Six months ended
November 30, November 30,
-----------------------------------------------------------------------------------------
In thousands 2000 1999 2000 1999
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<S> <C> <C> <C> <C>
CAC OPERATIONS
Gross profit $44,716 $61,103 $109,107 $130,657
Less: Depreciation, depletion &
amortization 9,809 9,656 19,492 19,405
Selling, general & administrative 9,541 11,315 21,548 22,669
Other income (2,812) (1,119) (3,332) (1,420)
------- ------- -------- --------
OPERATING PROFIT 28,178 41,251 71,399 90,003
STEEL OPERATIONS
Gross profit 23,573 14,650 56,546 23,464
Less: Depreciation & amortization 15,315 15,857 30,545 27,223
Selling, general & administrative 5,227 6,814 11,213 12,570
Other income (908) (2,503) (2,324) (2,672)
------- ------- -------- --------
OPERATING PROFIT (LOSS) 3,939 (5,518) 17,112 (13,657)
------- ------- -------- --------
TOTAL OPERATING PROFIT 32,117 35,733 88,511 76,346
CORPORATE RESOURCES
Other income 2,974 1,194 5,438 1,644
Less: Depreciation & amortization 287 286 560 521
Selling, general & administrative 8,985 7,945 17,044 17,820
------- ------- -------- --------
(6,298) (7,037) (12,166) (16,697)
INTEREST EXPENSE (9,003) (9,786) (18,310) (13,161)
------- ------- -------- --------
INCOME BEFORE TAXES & OTHER ITEMS $16,816 $18,910 $ 58,035 $ 46,488
======= ======= ======== ========
</TABLE>
RESULTS OF OPERATIONS
Net Sales. Consolidated net sales for the current quarter were $300.6
million, compared to $317.2 million for the prior year quarter. Consolidated net
sales for the current six-month period were $665.7 million, compared to $629.1
million for the prior year.
CAC sales for the quarter were down 5% from the prior year period
reflecting lower realized prices for cement and ready-mix. Demand for building
materials in the Company's CAC markets remains solid. Total cement sales for the
quarter were comparable to the prior year period with sales up $10.4 million for
the six-month period on 14% higher shipments. Average trade prices were 7% below
the prior year but comparable to the August 2000 quarter as prices have
stabilized in recent months. Ready-mix sales declined from the prior year 18%
for the quarter and 12% for the six months. Average prices were down 5%. Weather
impacted volumes in the current quarter which were 13% below the prior year
period. Aggregate sales were up from the prior year slightly for the quarter and
$3.1 million for the six months on higher shipments.
Steel sales for the quarter were down 5% from the prior year period with
realized prices 12% higher on 15% lower shipments. There continues to be solid
demand for structural products in North America. Structural steel sales for the
quarter were down somewhat from the prior year period with sales up $37.0
million for the six-month period. Realized prices in the current quarter were up
14% from the prior year but down 3% from the August 2000 quarter due to import
competition. Bar mill sales in the current quarter were 16% below the prior year
period due to 18% lower shipments.
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<PAGE>
Operating Costs. Consolidated cost of products sold including depreciation,
depletion and amortization for the current quarter was $256.4 million, a
decrease of $9.6 million from the prior year period. Costs for the current six
months were $548.1 million, an increase of $28.6 million from the prior year
period. CAC costs increased from the prior year $7.8 million in the quarter and
$22.5 million in the six months due primarily to increased cement shipments and
the impact of higher energy costs on unit costs. Steel costs decreased from the
prior year $17.4 million in the quarter and increased $6.1 million in the six
months as lower shipments were somewhat offset by higher unit product costs due
to increased energy costs and start-up inefficiencies at the Virginia plant.
CAC selling, general and administrative expenses including depreciation and
amortization decreased from the prior year $1.8 million in the quarter and $1.2
million in the six months due primarily to lower incentive accruals partially
offset by increased administrative expense attributed to operations. Steel
expense decreased $1.6 million in the quarter and $1.4 million in the six months
due primarily to lower selling and administrative costs.
Operating Profit. Operating profit of $32.1 million for the current quarter
was $3.6 million lower than the prior year period. Operating profit of $88.5
million for the current six months was $12.2 million higher than the prior year
period. CAC operating profit for the current quarter of $28.2 million was down
$13.1 million from the prior year period due to the impact of weather and higher
energy costs. Steel operating profit for the current quarter of $3.9 million was
up $9.5 million from the prior year period due to higher realized prices offset
by increased energy costs. Higher costs of manufacturing due to the start-up of
the Virginia plant adversely impacted operating profits, as well, and could
continue to affect near term results.
Corporate Resources. Selling, general and administrative expenses including
depreciation and amortization increased $1.0 million for the quarter and
decreased $700,000 for the six months as lower incentive accruals offset
increased costs associated with the Company's agreement to sell receivables and
higher real estate and administrative expenses. Other income increased $1.8
million in the current quarter and $3.8 million in the current six months due to
higher real estate income.
Interest Expense. Interest expense for the current six-month period at
$18.3 million was $5.1 million higher than the prior year period. The change was
due to a $5.7 million increase in interest resulting from higher average
outstanding debt offset by a $600,000 increase in interest capitalized.
Income Taxes. The Company's current effective tax rate is estimated at
32.2% 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 $3.6 million net of tax benefit were
incurred in each six-month period.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $84.6 million, a decrease of
$15.1 million from the prior year period. Sales of receivables provided $34.5
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. Lower November sales in both the CAC and
Steel segments reduced receivables $13.0 million. Inventories increased $22.6
million due to the decline in Steel shipments. Prepaid expenses increased $13.3
million primarily due to higher Steel shutdown costs associated with the normal,
scheduled refurbishing of the production facilities. Accounts payable and
accrued expenses decreased $22.8 million due primarily to lower trade payables,
incentive accruals and income taxes. During the prior year period, Steel
shipments and prices increased receivables and decreased inventories. Accounts
payable and accrued expenses increased primarily due to higher trade payables.
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<PAGE>
Net cash used by investing activities was $76.7 million, compared to $191.1
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 $49.4 million compared to $26.8 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 incurred for the expansion of the Company's Midlothian, Texas
cement plant were $31.5 million. Completion is expected by February 2001. 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 $94.6 million incurred for the Midlothian
cement plant expansion, $68.0 million was incurred towards the completion of the
Company's Virginia steel facility.
Net cash provided by financing activities was $300,000, compared to $82.7
million during the prior year period. The Company has available $98.1 million
under its $450 million revolving credit facility that expires in March 2004. The
Company also has available $10.2 million from industrial development bonds
issued in May 1999 to reimburse construction costs at its Midlothian cement
plant. During the current quarter the Company purchased approximately 300,000
shares of its Common Stock for general corporate purposes. 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.
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.
-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 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.
-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 17, 2000,
shareholders elected as Directors of the Company, John M. Belk, Gordon E.
Forward and James M. Hoak, Jr. to terms expiring in 2003. Votes cast to elect
John M. Belk were 18,250,368 affirmative, 546,157 opposed and 2,274,368
abstained or non-voted. Votes cast to elect Gordon E. Forward were 18,681,560
affirmative, 114,965 opposed and 2,274,368 abstained or non-voted. Votes cast to
elect James M. Hoak, Jr. were 18,681,909 affirmative, 114,616 opposed and
2,274,368 abstained or non-voted. Terms of office expire for the continuing
directors Gerald R. Heffernan, Robert D. Rogers and Ian Wachtmeister in 2001 and
for the continuing directors Robert Alpert, Eugenio Clariond Reyes and Elizabeth
Williams in 2002.
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, 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 November 30, 2000.
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<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 11, 2001 /s/ Richard M. Fowler
---------------- ----------------------
Richard M. Fowler
Executive Vice President - Finance and Chief
Financial Officer
(Principal Financial Officer)
January 11, 2001 /s/ James R. McCraw
---------------- --------------------
James R. McCraw
Vice President - Accounting and Information
Services
(Principal Accounting Officer)
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<PAGE>
INDEX TO EXHIBITS
Exhibits Page
15. Letter re: Unaudited Interim Financial Information................... 21
27. Financial Data Schedule.............................................. **
** Electronically filed only.
-20-
