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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended February 28, 2003

For the transition period from              to             

Commission File Number 1-4887

TEXAS INDUSTRIES, INC.

(Exact name of registrant as specified in the charter)

Registrant’s telephone number, including area code (972) 647-6700

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

As of April 7, 2003, 21,061,412 shares of Registrant’s Common Stock, $1.00 par value, were outstanding.

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INDEX

TEXAS INDUSTRIES, INC. AND SUBSIDIARIES

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CONSOLIDATED BALANCE SHEETS

TEXAS INDUSTRIES, INC. AND SUBSIDIARIES

See notes to consolidated financial statements.

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(Unaudited)

CONSOLIDATED STATEMENTS OF OPERATIONS

TEXAS INDUSTRIES, INC. AND SUBSIDIARIES

See notes to consolidated financial statements.

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(Unaudited)

CONSOLIDATED STATEMENTS OF CASH FLOWS

TEXAS INDUSTRIES, INC. AND SUBSIDIARIES

See notes to consolidated financial statements.

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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 the Steel segment, the Company produces and sells structural steel, piling products, specialty bar products, merchant bar-quality rounds, reinforcing bar and channels from facilities located in Texas and Virginia, 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 nine-month period ended February 28, 2003, are not necessarily indicative of the results that may be expected for the year ended May 31, 2003. 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, 2002.

Principles of Consolidation. The consolidated financial statements include the accounts of the Company and all subsidiaries. Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.

Estimates. The preparation of financial statements and accompanying notes in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates.

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. Useful lives for the Company’s primary operating facilities range from 10 to 20 years. Maintenance and repairs are charged to expense as incurred. Costs incurred for scheduled shut-downs to refurbish Steel facilities are amortized over the production period, typically 12 to 24 months.

Goodwill. Goodwill identified with CAC resulted from the acquisition of Riverside Cement Company. Goodwill identified with Steel resulted from the acquisition of Chaparral Steel Company. Goodwill is tested for impairment annually by each reporting unit. An independent evaluation determined that in each case the fair value of the respective reporting unit exceeds its carrying value. The carrying value of goodwill by business segment is summarized as follows:

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued

Real Estate and Investments. Surplus real estate and real estate acquired for development of high quality industrial, office and multi-use parks totaled $9.9 million and $14.3 million at February 28, 2003 and May 31, 2002, respectively. Investments, composed primarily of life insurance contracts which may be used to fund certain Company benefit agreements, totaled $33.4 million and $27.2 million at February 28, 2003 and May 31, 2002, respectively.

Debt Issuance Cost. Debt issuance costs totaling $8.7 million and $9.9 million at February 28, 2003 and May 31, 2002, respectively, are associated with various debt issues and amortized over the terms of the related debt.

Intangibles. Intangibles include non-compete agreements and other intangibles with finite lives being amortized on a straight-line basis over periods of 5 to 15 years. Their carrying value, adjusted for write-offs, totaled $2.7 million and $3.5 million, net of accumulated amortization of $5.8 million and $5.1 million at February 28, 2003 and May 31, 2002, respectively. Amortization expense of $700,000 and $900,000 was incurred in the nine-month periods ended February 28, 2003 and 2002, respectively. Annual amortization expense for each of the five succeeding years is $500,000, $400,000, $300,000, $300,000 and $300,000.

Other Credits. Other credits totaling $33.9 million and $32.1 million at February 28, 2003 and May 31, 2002, respectively, are composed primarily of liabilities related to the Company’s retirement plans and deferred compensation agreements.

Accumulated Other Comprehensive Loss. Accumulated other comprehensive loss represents a minimum pension liability adjustment related to a defined benefit retirement plan covering certain employees and retirees of an acquired subsidiary. The minimum pension liability adjustment was $600,000 net of tax of $300,000 at February 28, 2003. Comprehensive loss which consists of net loss and the minimum pension liability adjustment to shareholders’ equity was $17.3 million for the nine-month period ended February 28, 2003.

Net Sales. Sales are recognized when title has transferred and products are delivered. Sales are presented net of delivery costs as follows:

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 dividing net income by the weighted average number of common shares outstanding during the period including certain contingently issuable shares. Diluted EPS 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.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued

Basic and Diluted EPS are calculated as follows:

WORKING CAPITAL

Working capital totaled $113.6 million at February 28, 2003 and $202.6 million at May 31, 2002.

Receivables consist of:

Accounts receivable are presented net of allowances for doubtful receivables of $4.8 million at February and $4.7 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 renewal on May 31, 2003. The maximum amount outstanding varies based upon the level of eligible receivables. Fees are variable and follow commercial paper rates. The interest sold totaled $110.9 million at February and $125 million at May. 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. Fees and expenses of $2.2 million and $3.4 million are included in selling, general and administrative expenses in the nine-month periods ended February 28, 2003 and 2002, respectively. The Company, as agent for the purchaser, retains collection and administration responsibilities for the participating interests of the defined pool.

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WORKING CAPITAL-Continued

Inventories consist of:

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 $8.9 million at February and $6.3 million at May.

Accrued interest, wages and other items consist of:

LONG-TERM DEBT

Long-term debt is comprised of the following:

Annual maturities of long-term debt for each of the five succeeding years are $85.2, $53.7, $40.7, $45.7 and $41.5 million.

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LONG-TERM DEBT-Continued

The Company has available a bank-financed $350 million long-term revolving credit facility. An interest rate at the applicable margin above either prime or LIBOR is selected at the time of each borrowing. Commitment fees at a current annual rate of .375% are paid on the unused portion of this facility. At February 28, 2003, $76.5 million was outstanding under this facility. In addition, $114.4 million has been utilized to support letters of credit issued primarily to secure the Company’s variable-rate industrial development revenue bonds, which allows the interest rates on these bonds to closely follow the tax-exempt commercial paper rates.

Loan agreements contain covenants that place limitations on incurring certain indebtedness, purchasing treasury stock, and making capital expenditures and certain investments. The provisions of the revolving credit facility also require the Company to maintain certain ratios as of the end of each quarter. A fixed charge ratio defined as the ratio of earnings before interest, taxes depreciation and amortization (“EBITDA”) to fixed charges limits the aggregate amount of annual fixed charges, which includes cash dividends on common stock. At February 28, 2003, $11.4 million of additional fixed charges could have been incurred. A leverage ratio defined as the ratio of total debt to EBITDA limits the aggregate amount of total debt. As a result of its fiscal 2003 third quarter results, the Company’s leverage ratio did not meet this requirement at February 28, 2003. The Company received a waiver from its lenders addressing the current deficiency through May 30, 2003, however, the Company can not be certain that it will be able to meet this requirement in the future, and therefore, has classified its revolving credit facility debt as debt due within one year. The Company is in compliance with all other loan covenant restrictions.

The amount of interest paid for the nine-month periods presented was $20.5 million in 2003 and $28.9 million in 2002.

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. At February 28, 2003, 3,998,744 Preferred Securities and $206.1 million aggregate principal amount of Debentures were outstanding. 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 under certain circumstances relating to federal income tax matters, or at the option of the Company, in whole or in part, 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).

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SHAREHOLDERS’ EQUITY

Common stock consists of:

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 as approved by shareholders provides that non-qualified and incentive stock options to purchase Common Stock may be granted to directors, officers and key employees at market prices at date of grant. Outstanding options become exercisable in installments beginning one year after date of grant and expire ten years later.

A summary of option transactions for the nine-month period ended February 28, 2003, follows:

At February 28, 2003, there were 1,809,393 shares exercisable and 581,060 shares available for future grants. Outstanding options expire on various dates to January 15, 2013.

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INCOME TAXES

Federal income taxes for the interim periods ended February 28, 2003 and 2002, have been included in the accompanying financial statements on the basis of an estimated annual rate. The primary reason that the tax rate differs from the 35% statutory corporate rate is due to percentage depletion that is tax deductible and state income tax expense. Applying these differences to the estimated current year pre-tax income resulted in an estimated annualized effective tax rate for 2003 of 43.9% compared to 31.3% for 2002. The tax benefit attributed to dividends on preferred securities is based on the incremental tax rate of 35%. The Company made income tax payments of $2.6 million and $1.7 million in the nine-month periods ended February 28, 2003 and 2002, respectively and received income tax refunds of $18.3 million in the nine-month period ended February 28, 2002.

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 in violation of certain environmental laws and regulations. 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.

A wholly owned subsidiary of the Company based in California received a complaint from the California air regulatory authorities in connection with its manufacturing operations. The subsidiary makes lightweight clay aggregate by heating clay pellets in two natural gas-fired kilns. The complaint alleges violations of the subsidiary’s air emissions permit, but does not specify the amount of any monetary sanction which may be sought. The amount of any possible sanctions is not currently estimable. The Company believes that the subsidiary is in substantial compliance with its permit limitations.

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 or results of operations of the Company.

BUSINESS SEGMENTS

The Company has two reportable segments: cement, aggregate and concrete products (the “CAC” segment) and steel (the “Steel” segment). The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because of significant differences in manufacturing processes, distribution and markets served. Through the CAC segment, the Company produces and sells cement, stone, sand and gravel, expanded shale and clay aggregate and concrete products. Through the Steel segment, the Company produces and sells structural steel, piling products, specialty bar products, merchant bar-quality rounds, reinforcing bar and channels. Operating profit is net sales less operating costs and expenses, excluding general corporate expenses and interest expense. Operating results and certain other financial data for the Company’s business segments are presented on pages 14 and 15 under “Business Segments” of Management’s Discussion and Analysis of Financial Condition and Results of Operations, and are incorporated herein by reference.

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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 (the Company) as of February 28, 2003 and the related condensed consolidated statements of operations for the three and nine-month periods ended February 28, 2003 and 2002, and the condensed consolidated statements of cash flows for the nine-month periods ended February 28, 2003 and 2002. 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, 2002, 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 9, 2002, 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, 2002, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

Dallas, Texas

March 20, 2003

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Comparison of operations and financial condition for the three-month and nine-month periods ended February 28, 2003 to the three-month and nine-month periods ended February 28, 2002.

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 the 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.

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