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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED).
For the fiscal year ended May 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED).
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 (I.R.S. Employer Identification No.)
incorporation or organization)
1341 West Mockingbird Lane, #700W, Dallas, Texas 75247-6913
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 647-6700
Securities registered pursuant to Section 12(b)of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, Par Value $1.00 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
The aggregate market value of the Registrant's Common Stock, $1.00 par value,
held by non-affiliates of the Registrant as of June 30, 1999 was $779,114,281.
As of August 23, 1999, 21,009,126 shares of the Registrant's Common Stock, $1.00
par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Registrant's definitive proxy statement for the annual meeting
of shareholders to be held October 19, 1999, are incorporated by reference into
Part III.
TABLE OF CONTENTS
Page
PART I
Item 1. Business............................................................................. 1
Item 2. Properties........................................................................... 5
Item 3. Legal Proceedings.................................................................... 5
Item 4. Submission of Matters to a Vote of Security Holders.................................. 6
Item 4A. Executive Officers of the Registrant................................................. 6
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters......... 8
Item 6. Selected Financial Data.............................................................. 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................... 15
Item 8. Financial Statements and Supplementary Data.......................................... 15
Item 9. Disagreements on Accounting and Financial Disclosures................................ 31
PART III
Item 10. Directors and Executive Officers of the Registrant.................................. 31
Item 11. Executive Compensation.............................................................. 31
Item 12. Security Ownership of Certain Beneficial Owners and Management...................... 31
Item 13. Certain Relationships and Related Transactions...................................... 31
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................... 31
PART I
ITEM 1. BUSINESS
--------
(a) General Development of Business
Texas Industries, Inc. and subsidiaries (unless the context indicates otherwise,
collectively, the "Registrant", the "Company" or "TXI"), 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, TXI produces and sells
cement, stone, sand and gravel, expanded shale and clay aggregate and concrete
products. Through its Steel segment, TXI produces and sells structural steel,
specialty bar products, merchant bar-quality rounds, reinforcing bar and
channels. The Company is the largest producer of cement in Texas, a major
cement producer in California and the second largest supplier of structural
steel products in North America. Demand for structural steel, cement, aggregate
and concrete products is primarily driven by construction activity, while
specialty bar products supply the original equipment manufacturers, tool and oil
country goods markets.
Incorporated April 19, 1951, the Registrant began its cement operations in 1960
with the opening of its Midlothian, Texas facility and added its steel
operations in 1975 with the construction of a plant in Midlothian. TXI has
derived significant benefits as a producer of both cement and steel, primarily
in lowering production costs and enhancing productivity through the innovative
recycling of by-products of manufacturing.
On December 31, 1997, the Company acquired Riverside Cement Company, the owner
of a 1.3 million ton per year portland cement plant and a 100,000 ton per year
specialty white cement plant. The acquisition increased TXI's cement capacity
by 60% and opened the California regional cement market to the Company. In
March 1999, TXI began construction at its Midlothian, Texas cement plant which
when completed will expand the plant's production from 1.3 to 2.8 million tons
per year. TXI is constructing a structural steel facility in Virginia,
scheduled to begin operations during the August 1999 quarter, which will expand
TXI's steel capacity by approximately two-thirds. On December 31, 1997, the
Company acquired the minority interest in its 85% owned subsidiary, Chaparral
Steel Company.
(b) Financial Information about Industry Segments
Financial information for the Registrant's two industry segments, is presented
in Part II, Item 7 "Management's Discussion and Analysis of Financial Condition
and Results of Operations" on pages 10 and 11, incorporated herein by reference.
(c) Narrative Description of Business
CEMENT, AGGREGATE AND CONCRETE
The CAC business segment includes the manufacture and sale of cement,
aggregates, ready-mix concrete, concrete block and brick. Production and
distribution facilities are concentrated primarily in Texas, Louisiana and
California, with markets extending into contiguous states. In addition, TXI has
certain patented and unpatented mining claims in southern California which
contain deposits of limestone. The Company does not place heavy reliance on
patents, franchises, licenses or concessions related to its CAC operations.
Cement
TXI's principal product is portland cement. The Company also produces specialty
cements such as white, masonry, adobe and oil well.
Cement production facilities are located at four sites in Texas and California:
Midlothian, Texas, south of Dallas/Fort Worth, the largest cement plant in
Texas; Hunter, Texas, south of Austin; and Oro Grande and Crestmore, California,
both near Los Angeles. Except for the Crestmore facility, the limestone
reserves used as the primary raw material are located on fee-owned property
adjacent to each of the plants. Raw material for the Crestmore facility is
purchased from outside suppliers. Information regarding each of the Company's
facilities is as follows:
-1-
Annual Rated Productive Manufacturing Service Estimated Minimum
Plant Capacity - (Tons of Clinker) Process Date Reserves - Years
----- ---------------------------- ------------- ------- -----------------
Midlothian, TX 1,300,000 Wet 1960 100
Hunter, TX 800,000 Dry 1979 100
Oro Grande, CA 1,300,000 Dry 1948 90
Crestmore, CA 100,000 Dry 1962 N/A
The Company uses its patented CemStar process in both of its Texas facilities
and its Oro Grande California facility to increase combined annual production by
approximately 8%. The CemStar process adds "slag," a co-product of steel-
making, into a cement kiln along with the regular raw material feed. The slag
serves to increase the production of clinker which is then ground to make
cement. The primary fuel source for all of the Company's facilities is coal;
however, the Company displaces approximately 35% of its coal needs at its
Midlothian plant and approximately 10% of its coal needs at its Hunter plant by
utilizing alternative fuels.
The Company produced approximately 3.4 million tons of finished cement in 1999,
2.7 million tons in 1998 and 2.1 million tons in 1997. Total annual shipments
of finished cement were approximately 3.9 million tons in 1999, 2.9 million tons
in 1998 and 2.1 million tons in 1997 of which 2.8 million tons in 1999, 2.0
million tons in 1998 and 1.3 million tons in 1997 were shipped to outside trade
customers.
The Company markets its products throughout the southwestern United States. Its
principal marketing area includes the states of Texas, Louisiana, Oklahoma,
California, Nevada, Arizona and Utah. Sales offices are maintained throughout
the marketing area and sales are made primarily to numerous customers in the
construction industry, none of which accounted for more than ten percent of the
trade sales volume in 1999.
The Company distributes cement from its plants by rail or truck to seven
distribution terminals located throughout its marketing area.
The cement industry is highly competitive with suppliers differentiating
themselves based on price, service and quality.
Aggregate, Concrete and Other Products
TXI's aggregate business, which includes sand, gravel, crushed limestone and
expanded shale and clay, is conducted from facilities primarily serving the
Dallas/Fort Worth, Austin and Houston areas in Texas; the Alexandria, New
Orleans, Baton Rouge and Monroe areas in Louisiana; the Oakland/San Francisco
and Los Angeles areas in California; and the Denver area in Colorado. The
following table summarizes certain information about the Registrant's aggregate
production facilities:
Estimated Annual Estimated
Number of Productive Minimum
Type of Facility and General Location Plants Capacity Reserves - Years
- ------------------------------------- --------- ----------------- ----------------
Crushed Limestone
North Central Texas 1 7.1 million tons 27
Sand & Gravel
North Central Texas 4 4.0 million tons 10
Central Texas 3 3.6 million tons 14
Louisiana 10 7.4 million tons 27
South Central Oklahoma 1 1.2 million tons 3
Expanded Shale & Clay
North Central & South Texas 2 1.3 million cu. yds. 25
California 2 .6 million cu. yds. 25
Colorado 1 .4 million cu. yds. 25
-2-
Reserves identified with the facilities shown above and additional reserves
available to support future plant sites are contained on approximately 40,000
acres of land, of which approximately 21,000 acres are owned in fee and the
remainder leased. The expanded shale and clay plants operated at 87 percent of
capacity for 1999 with sales of approximately 1.8 million cubic yards.
Production for the remaining aggregate facilities was 71 percent of practical
capacity and sales for the year totaled 16.3 million tons, of which
approximately 11.7 million tons were shipped to outside trade customers. In
addition, the Registrant owns and operates three industrial sand plants and an
aggregate blending facility.
The cost of transportation limits the marketing of these various aggregates to
the areas relatively close to the plant sites. Consequently, sales of these
products are related to the level of construction activity near these plants.
These products are marketed by the Company's sales organization located in the
areas served by the plants and are sold to numerous customers, no one of which
would be considered significant to the Company's business. The distribution of
these products is provided to trade customers principally by contract or
customer-owned haulers, and a limited amount of these products is distributed by
rail for affiliated usage.
The Company's ready-mix concrete operations are situated in three areas in Texas
(Dallas/Fort Worth/Denton, Houston/Beaumont and East Texas), in north and
central Louisiana, and at one location in southern Arkansas. The following
table summarizes various information concerning these facilities:
Location Number of Plants Number of Trucks
-------- ---------------- ----------------
Texas 37 438
Louisiana 21 133
Arkansas 1 2
The plants listed above are located on sites owned or leased by the Company.
TXI manufactures and supplies a substantial amount of the cement and aggregates
used by the ready-mix plants with the remainder being purchased from outside
suppliers. Ready-mix concrete is sold to various contractors in the
construction industry, no one of which would be considered significant to the
Company's business.
During 1999 the Company sold its concrete pipe and bridge span manufacturing
facilities in Louisiana. The remainder of the major concrete products
manufactured and marketed by the Company are summarized below:
Products Produced/Sold Locations
---------------------- ---------
Sakrete and related products Dallas/Fort Worth, Texas
Austin, Texas
Cresson, Texas
Houston, Texas
Bossier City, Louisiana
Concrete block Alexandria, Louisiana
Bossier City, Louisiana
Monroe, Louisiana
Clay brick Athens, Texas
Mineral Wells, Texas
Mooringsport, Louisiana
The plant sites for the above products are owned by the Company. The products
are marketed by the Company's sales force in each of these locations, and are
primarily delivered by trucks owned by the Company. Because the cost of
delivery is significant to the overall cost of most of these products, the
market area is generally restricted to within approximately one hundred miles of
the plant locations. These products are sold to various contractors, owners and
distributors, none of which would be considered significant to the Company's
business.
In most of TXI's principal markets for concrete products, the Company competes
vigorously with at least three other vertically integrated concrete companies.
The Company believes that it is a significant participant in each of the Texas
and Louisiana concrete products markets. The principal methods of competition
in concrete products markets are quality and service at competitive prices.
-3-
STEEL
The Company's steel facility in Midlothian, Texas follows a market mill concept
which entails the low cost production of a wide variety of products ranging from
reinforcing bar and specialty bar products to large-sized structural beams. The
facility has two electric arc furnaces with continuous casters which feed melted
steel to a bar mill, a structural mill and a large beam mill which together
produce a broader array of steel products than a traditional mini-mill.
Finished (rolled) products produced include beams up to twenty-four inches wide,
merchant bar-quality rounds, special bar quality rounds, reinforcing bar and
channels.
The rated annual capacity of the Texas operating facilities are as follows:
Annual Rated Productive Approximate
Capacity (Tons) Facility Square Footage
----------------------- -----------------------
Melting 1,800,000 265,000
Rolling 1,900,000 560,000
The bar and structural mills produced approximately 1.3 million tons of finished
products in 1999 and 1.6 million tons of finished products during both 1998 and
1997.
Recycled steel is the primary raw material, with shredded steel representing 42
percent of the raw material mix. A major portion of the shredded steel
requirements is produced by a shredder operation at the steel mill. The shredded
material is primarily composed of crushed auto bodies purchased on the open
market. Another grade of recycled steel, #1 Heavy, representing 31 percent of
the raw material requirements is also purchased on the open market. The
purchase price of recycled steel is subject to market forces largely beyond the
Company's control. The supply of recycled steel is expected to be adequate to
meet future requirements.
The steel mill consumes large amounts of electricity and natural gas.
Electricity is currently obtained from a local electric utility under an
interruptible supply contract with price adjustments that reflect increases or
decreases in the utility's fuel costs. Natural gas is obtained from a local gas
utility under a supply contract. The Company believes that adequate supplies of
both electricity and natural gas are readily available.
The Company's Virginia steel facility, scheduled to begin operations during the
August 1999 quarter, is located close to both sources of recycled steel and
attractive markets that require structural steel for construction. The plant
will have an annual rated productive capacity of approximately 1.2 million tons
and employ over 400 workers. Proprietary casting technology developed at the
Company's Texas plant combined with the latest rolling and melting techniques
will allow the plant to achieve lower unit operating costs than the Texas plant
and make a wider range of structural products, including beams up to thirty-six
inches wide and sheet pile. It is expected that start up costs and lower
production, as the Virginia plant is brought on-line, will adversely affect near
term results.
The Company's steel products are marketed throughout the United States and to a
limited extent in Canada and Mexico, and under certain market conditions,
Western Europe and Asia. Sales are primarily to steel service centers and steel
fabricators for use in the construction industry, as well as, to cold finishers,
forgers and original equipment manufacturers for use in the railroad, defense,
automotive, mobile home and energy industries. The Company does not place heavy
reliance on franchises, licenses or concessions. None of TXI's customers
accounted for more than ten percent of the Steel segment's sales in 1999. Sales
to affiliates are minimal. Orders are generally filled within 45 days and are
cancelable. Delivery of finished products is accomplished by common-carrier,
customer-owned trucks, rail or barge.
The Company competes with steel producers, including foreign producers, on the
basis of price, quality and service. Certain of the foreign and domestic
competitors, including both large integrated steel producers and mini-mills,
have substantially greater assets and larger sales organizations than TXI.
Intense sales competition exists for substantially all of the Steel segment's
products.
-4-
ENVIRONMENTAL MATTERS
The operations of the Company are subject to various federal and state
environmental laws and regulations. Under these laws the U. S. Environmental
Protection Agency ("EPA") and agencies of state government have the authority to
promulgate regulations which could result in substantial expenditures for
pollution control and solid waste treatment. Three major areas regulated by
these authorities are air quality, water quality and hazardous waste management.
Pursuant to these laws and regulations, emission sources at the Company's
facilities are regulated by a combination of permit limitations and emission
standards of statewide application, and the Company believes that it is in
substantial compliance with its permit limitations and applicable laws and
regulations.
The Company's steel mill generates, in the same manner as other steel mills in
the industry, electric arc furnace ("EAF") dust that contains lead, chromium and
cadmium. The EPA has listed this EAF dust, which TXI collects in baghouses, as
a hazardous waste. The Company has contracts with reclamation facilities in the
United States and Mexico pursuant to which such facilities receive the EAF dust
generated by the steel mill and recover the metals from the dust for reuse, thus
rendering the dust non-hazardous. In addition, the Company is continually
investigating alternative reclamation technologies and has implemented processes
for diminishing the amount of EAF dust generated.
The Company intends to comply with all legal requirements regarding the
environment but since many of these requirements are not fixed, presently
determinable, or are likely to be affected by future legislation or rule making
by government agencies, it is not possible to accurately predict the aggregate
future costs or benefits of compliance and their effect on the Company's
operations, future net income or financial condition. Despite the Company's
compliance, if liability to persons or property or contamination of the
environment has been or is caused by the conduct of the Company's business or by
hazardous substances or wastes used in, generated or disposed of by the Company,
the Company might be held responsible for such liability and be required to pay
the cost of investigation and remediation of such contamination. The amount of
such future liability which might be material is not currently known or
estimable. Changes in federal or state laws, regulations or requirements or
discovery of currently unknown conditions could require additional expenditures
by or provide additional benefits to the Company.
OTHER ITEMS
TXI provides products for the construction industry. It is not uncommon for the
Company to report a loss from its cement, aggregate and concrete operations in
the quarter ending February due to adverse weather conditions. Steel results in
the quarters ending August and February are affected by the normal, scheduled
two-week summer and one-week winter shut-downs to refurbish the production
facilities. The dollar amount of the Company's backlog of orders is not
considered material to an understanding of its business.
TXI has approximately 4,200 employees: 2,700 employed in CAC operations, 1,200
employed in Steel operations and the balance in corporate resources.
The Company is involved in the development of its surplus real estate and real
estate acquired for development of high quality industrial, office and multi-use
parks in the metropolitan areas of Dallas/Fort Worth and Houston, Texas and
Richmond, Virginia.
ITEM 2. PROPERTIES
----------
The information required by this item is included in the answer to Item 1.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The information required by this item is included in the section of the Notes to
Consolidated Financial Statements entitled "Legal Proceedings and Contingent
Liabilities" presented in Part II, Item 8 on page 28 and incorporated herein by
reference.
-5-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
Information on executive officers of the Registrant is presented below:
Positions with Registrant, Other
Name Age Employment During Last Five (5) Years
---- --- -------------------------------------
Robert D. Rogers 63 President and Chief Executive Officer and Director
Melvin G. Brekhus 50 Executive Vice President and Chief Operating Officer,
Cement, Aggregate and Concrete (since 1998)
Vice President-Cement (1995 to 1998)
Vice President-Cement Production (until 1995)
Tommy A. Valenta 50 Executive Vice President and Chief Operating Officer,
Steel (since 1998)
Vice President-Concrete (1995 to 1998)
Vice President-North Texas Concrete/Cement Marketing
(until 1995)
Kenneth R. Allen 42 Vice President (since 1996) and Treasurer
Barry M. Bone 41 Vice President-Real Estate (since 1995)
Director of Corporate Real Estate (until 1995)
President, Brookhollow Corporation
Larry L. Clark 55 Vice President-Controller (since 1997)
Vice President-Controller, Chaparral Steel Company
Assistant Treasurer, Chaparral Steel Company (until 1997)
Roman J. Figueroa 53 Vice President-Aggregate Operations
Carlos E. Fonts 59 Vice President-Development (since 1996)
Manager Latin America, Alex Brown & Sons (1995)
Fonts & Associates (until 1995)
Gordon E. Forward 63 Vice Chairman of the Board (since 1998)
President and Chief Executive Officer, Chaparral Steel
Company (until 1998)
David A. Fournie 51 Vice President-Steel Production (since 1999)
Vice President-Structural Products (1997 to 1998)
Vice President-Structural Products Business Unit, Chaparral
Steel Company (1995 to 1997)
Vice President of Operations, Chaparral Steel Company
(until 1995)
Richard M. Fowler 56 Vice President-Finance and Chief Financial Officer
-6-
Positions with Registrant, Other
Name Age Employment During Last Five (5) Years
---- --- ----------------------------------------------------------------
H. Duff Hunt, III 53 Vice President-Recycled Products (since 1997)
Vice President-Recycled Products Business Unit, Chaparral
Steel Company (1995 to 1997)
General Manager Operations-Melt Shop, Chaparral Steel
Company (until 1995)
Richard T. Jaffre 56 Vice President-Raw Materials (since 1997)
Vice President-Raw Materials/Transportation, Chaparral Steel
Company (until 1997)
James R. McCraw 55 Vice President-Accounting/Information Services
(since 1997)
Vice President-Controller (until 1997)
Robert C. Moore 65 Vice President-General Counsel and Secretary
Libor F. Rostik 65 Vice President-Technology and Development
(since 1997)
Vice President-Engineering, Chaparral Steel Company
(until 1997)
Peter H. Wright 57 Vice President-Bar Product Sales (since 1999)
Vice President-Bar Products (1997 to 1998)
Vice President-Bar Products Business Unit, Chaparral Steel
Company (1995 to 1997)
Vice President-Quality Control and SBQ Sales, Chaparral
Steel Company (until 1995)
-7-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
--------------------------------------------------------------
HOLDER MATTERS
--------------
The shares of common stock, $1 par value, of the Registrant are traded on the
New York Stock Exchange (ticker symbol TXI). At May 31, 1999, the approximate
number of shareholders of common stock of the Registrant was 3,546. Common
stock market prices, dividends and certain other items are presented in the
Notes to Consolidated Financial Statements entitled "Quarterly Financial
Information" on page 30, incorporated herein by reference. The restriction on
the payment of dividends described in the Notes to Consolidated Financial
Statements entitled "Long-term Debt" on pages 23 and 24 is incorporated herein
by reference. At the January 1997 Board of Directors' meeting, the Directors
voted to declare a two-for-one stock split and increase the quarterly cash
dividend from five cents per share to seven and one-half cents per share.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
$ In thousands except per share 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Net sales $1,126,800 $1,196,275 $973,824 $967,449 $830,526
Operating profit 178,260 195,251 154,535 165,904 112,635
Net income 88,743 102,130 75,474 79,954 48,017
Return on average common equity 14.9% 20.5% 17.3% 21.0% 13.8%
PER SHARE INFORMATION
Net income (diluted) $ 3.92 $ 4.69 $ 3.42 $ 3.53 $ 1.94
Cash dividends .30 .30 .25 .20 .15
Book value 25.83 25.36 20.43 18.52 13.83
FOR THE YEAR
Cash from operations $ 242,225* $ 215,020 $109,899 $127,463 $115,864
Capital expenditures 475,464 440,781 85,188 79,300 48,751
YEAR END POSITION
Total assets $1,531,053 $1,185,831 $847,923 $801,063 $753,055
Net working capital 162,411 226,968 242,994 219,345 187,603
Long-term debt 456,365 405,749 176,056 160,209 185,274
Preferred securities 200,000 -- -- -- --
Shareholders' equity 632,550 553,326 452,811 420,022 343,109
Long-term debt to total
capitalization 35.4% 42.3% 28.0% 27.6% 35.1%
OTHER INFORMATION
Diluted average common shares
outstanding (in 000's) 24,492 21,819 22,163 22,682 24,817
Number of common shareholders 3,546 3,630 3,796 4,017 4,445
Number of employees 4,200 4,100 3,400 3,000 2,800
Wages, salaries and employee
benefits $ 189,722 $ 168,530 $145,953 $141,233 $114,366
Common stock prices
(high-low) 59 - 19 68 - 23 34 - 20 34 - 17 19 - 14
* Includes $100 million from sale of receivables.
-8-
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
GENERAL
The Company is a leading supplier of construction materials through two business
segments: cement, aggregate and concrete products (the "CAC" segment); and
structural steel and specialty bar products (the "Steel" segment). Through the
CAC segment, the Company produces and sells cement, stone, sand and gravel,
expanded shale and clay aggregate and concrete products. Through its Steel
segment, the Company produces and sells structural steel, specialty bar
products, merchant bar-quality rounds, reinforcing bar and channels.
The Company's CAC facilities are concentrated primarily in Texas, Louisiana and
California with several products marketed throughout the United States. The
Company owns long-term reserves of limestone, the primary raw material for the
production of cement. In 1999, the Company completed its first full year of
operation of its California cement plants acquired through its purchase of
Riverside Cement Company. The acquisition opened the California regional cement
market to the Company, increasing TXI's cement capacity by 60%. In March 1999,
the Company began construction at its Midlothian, Texas cement plant which when
completed will expand the plant's production from 1.3 to 2.8 million tons per
year.
The Company's Texas steel facility follows a market mill concept which entails
producing a wide variety of products utilizing recycled steel obtained from
crushed automobiles and other sources as its principal raw material. TXI strives
to be a low-cost supplier and is able to modify its product mix to recognize
changing market conditions or customer requirements. Steel products are sold
principally to steel service centers, fabricators, cold finishers, forgers and
original equipment manufacturers. The Company distributes primarily to markets
in North America and, under certain market conditions, Europe and Asia. TXI is
nearing completion of a structural steel facility in Virginia, scheduled to
begin operations during the August 1999 quarter, which will expand TXI's steel
capacity by approximately two-thirds.
Both the CAC and Steel businesses require large amounts of capital investment,
energy, labor and maintenance.
Corporate resources include administration, financial, legal, environmental,
personnel and real estate activities which are not allocated to operations and
are excluded from operating profit.
RESULTS OF OPERATIONS
Net Sales
Consolidated 1999 net sales declined $69.5 million from 1998 to $1,126.8
million.
CAC net sales at $644.4 million, were $153.8 million above the prior year. Total
cement sales increased $95.3 million due primarily to the Company's expansion
into the California cement market through the acquisition of Riverside Cement
Company. Sales from the California plants during their first full year of
operation contributed $76.2 million of the $95.3 million increase in cement
sales. Sales from the Company's Texas plants were up $19.1 million on 12% higher
average prices. Continued strong market conditions in Texas resulted in
increased ready-mix and stone, sand and gravel sales. Ready-mix sales increased
27% on 12% higher average prices and 13% higher volume. Stone, sand and gravel
pricing increased 9% with shipments up 6%.
Steel sales at $482.4 million were down 32% from the prior year. Shipments
declined 25%. Strong nonresidential building activity has continued to sustain
demand for structural products in North America; however, an unprecedented
increase in structural steel imports has resulted in a very competitive market.
Shipments increased 29% in the May quarter over the February quarter, reaching
May 1998 levels but at 24% lower prices. As the Company competes to return its
market share to previous levels, prices for structural products could decline
further. The major stage of the bar mill upgrade project was completed during
the November quarter resulting in lower bar mill production and shipments as the
mill was brought back on-line.
-9-
RESULTS OF OPERATIONS-Continued
Consolidated 1998 net sales increased $222.5 million over 1997 to $1,196.3
million.
CAC net sales, at $490.6 million, were $133.4 million above the prior year.
Total cement sales from the Company's Texas operations were up $26.2 million as
a result of a 12% increase in shipments. Riverside Cement Company, which was
acquired on December 31, 1997, contributed $40.0 million in sales. The Company's
entry into the California regional market through the acquisition of Riverside
contributed to an overall increase in total cement shipments of 41%. The
purchase of additional ready-mix plants and the return to more favorable weather
conditions resulted in increased ready-mix and stone, sand and gravel sales. Net
ready-mix sales reflect a 32% increase in volume and somewhat higher prices.
Stone, sand and gravel shipments increased 10% during 1998 with prices
comparable to the prior year. Other product sales include expanded shale and
clay aggregate sales of $39.5 million, up 48% from 1997, due to increased
volumes at the Company's Texas and California facilities and the purchase of
facilities in Colorado.
Steel sales were $705.7 million, an increase of $89.0 million over the prior
year. Structural steel shipments increased 18% and average selling prices
increased 3% in 1998 due to the continued strength in construction activity.
Prices for bar mill products increased 5% over the prior year as a result of an
improved product mix and higher reinforcing bar and specialty bar product
prices. These improvements were offset by a 10% decrease in shipments.
BUSINESS SEGMENTS
Year ended May 31,
--------------------------------------------------------------------------------------------
In thousands 1999 1998 1997
--------------------------------------------------------------------------------------------
TOTAL SALES
Cement $ 294,808 $ 199,462 $ 133,256
Ready-mix 255,626 202,044 148,861
Stone, sand & gravel 97,656 85,099 76,070
Bar mill 104,286 169,001 178,227
Structural mills 365,291 527,704 435,242
UNITS SHIPPED
Cement (tons) 3,852 2,945 2,082
Ready-mix (cubic yards) 4,203 3,724 2,813
Stone, sand & gravel (tons) 18,010 17,058 15,501
Bar mill (tons) 296 474 525
Structural mills (tons) 1,030 1,294 1,095
NET SALES
Cement $ 215,345 $ 135,056 $ 83,690
Ready-mix 254,980 200,627 148,579
Stone, sand & gravel 69,161 58,557 50,676
Other products 104,871 96,346 74,203
----------- ---------- ----------
TOTAL CAC 644,357 490,586 357,148
Bar mill 104,286 169,001 178,227
Structural mills 365,291 527,704 435,242
Transportation service and other 12,866 8,984 3,207
----------- ---------- ----------
TOTAL STEEL 482,443 705,689 616,676
----------- ---------- ----------
TOTAL NET SALES $ 1,126,800 $1,196,275 $ 973,824
=========== ========== ==========
-10-
BUSINESS SEGMENTS-Continued
Year ended May 31,
------------------------------------------------------------------------------------------------
In thousands 1999 1998 1997
------------------------------------------------------------------------------------------------
CAC OPERATIONS
Gross profit $ 236,505 $ 164,876 $ 125,942
Less: Depreciation, depletion &
amortization 36,633 27,767 19,918
Selling, general & administrative 41,540 31,882 25,616
Other income (6,978) (2,499) (2,640)
---------- ---------- ---------
OPERATING PROFIT 165,310 107,726 83,048
STEEL OPERATIONS
Gross profit 69,599 151,456 132,309
Less: Depreciation & amortization 36,468 33,642 33,153
Selling, general & administrative 26,381 36,250 29,197
Other income (6,200) (5,961) (1,528)
---------- ---------- ---------
OPERATING PROFIT 12,950 87,525 71,487
---------- ---------- ---------
TOTAL OPERATING PROFIT 178,260 195,251 154,535
CORPORATE RESOURCES
Other income 9,535 8,821 7,680
Less: Depreciation & amortization 946 870 838
Selling, general & administrative 31,442 23,152 19,270
---------- ---------- ---------
(22,853) (15,201) (12,428)
INTEREST EXPENSE (11,310) (20,460) (18,885)
---------- ---------- ---------
INCOME BEFORE TAXES &
OTHER ITEMS $ 144,097 $ 159,590 $ 123,222
========== ========== =========
CAPITAL EXPENDITURES
CAC $ 43,531 $ 191,503 $ 49,327
Steel 423,880 247,893 33,776
Corporate resources 8,053 1,385 2,085
---------- ---------- ---------
$ 475,464 $ 440,781 $ 85,188
========== ========== =========
IDENTIFIABLE ASSETS
CAC $ 405,694 $ 453,244 $ 274,880
Steel 1,017,937 640,431 494,210
Corporate resources 107,422 92,156 78,833
---------- ---------- ---------
$1,531,053 $1,185,831 $ 847,923
========== ========== =========
See notes to consolidated financial statements.
-11-
Operating Costs
Consolidated cost of products sold including depreciation, depletion and
amortization was $889.5 million, a decline of $48.9 million from 1998. CAC costs
were $440.3 million, an increase of $89.7 million, as a result of increased
shipments, higher average ready-mix distribution costs and the inclusion of a
full year of operating costs of the California cement plants. Steel costs were
$449.2 million, a decline of $138.6 million due primarily to lower shipments.
CAC selling, general and administrative expense including depreciation and
amortization at $45.8 million increased $11.1 million due primarily to the
expanded cement operations and higher incentive compensation. Steel expenses at
$26.5 million decreased $9.8 million due to lower incentive compensation
offsetting higher selling expense.
Operating Profit
Operating profit was $178.3 million in 1999, a decrease of 9% from the prior
year. CAC profits were $57.6 million higher than 1998 with the California cement
plants contributing $22.0 million of the increase. Increased shipments and
higher average pricing resulted in increased operating profits from the Texas
and Louisiana operations as well.
Steel operating profit declined $74.6 million due to reduced shipments and lower
prices. The 1999 profit also included $6.3 million in income from the Company's
litigation against certain graphite electrode suppliers.
Steel profits are being adversely impacted by the unprecedented volume of steel
imports from Russia, Asia and South America. As an international low-cost
supplier of structural steel products, the Company's focus has shifted from
maximizing margins to maintaining market share, and thus, the Company has
reduced structural beam prices accordingly. As a result, near term unit margins
for these products could continue to decline. As the Company's new Virginia
steel plant begins operations during the August 1999 quarter it is anticipated
that start-up costs and higher than normal unit operating costs due to lower
production as the plant is brought on-line will adversely affect near term
results.
Corporate Resources
Selling, general and administrative expenses including depreciation and
amortization at $32.4 million increased $8.4 million due in part to higher
incentive compensation, real estate operating expenses and the ongoing costs of
the Company's agreement to sell receivables. Other income includes increased
interest income and $7.0 million from property sales generated by the Company's
real estate operation in both 1999 and 1998.
Interest Expense
Interest expense at $11.3 million was $9.2 million lower than 1998. The
reduction was due to an $18.6 million increase in interest capitalized that
offset a $9.4 million increase in interest incurred resulting from higher
average outstanding debt.
Income Taxes
The Company's 1999 effective tax rate was 33.4% compared to 33.2% in 1998. The
primary reason that the tax rate differs 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.
Dividends on Preferred Securities - Net of Tax
Dividends on preferred securities of subsidiary in the amount of $7.1 million
net of tax benefit were incurred in 1999 due to the issuance of such securities
in June 1998.
-12-
LIQUIDITY AND CAPITAL RESOURCES
The CAC operations benefited from continued strong construction activity
offsetting a sharp decline in Steel shipments and prices that reduced net income
$13.4 million from the prior year. Cash provided by operations, the issuance of
subsidiary preferred securities and increased long-term debt funded $475.5
million in capital expenditures and reduced the long-term debt to total
capitalization ratio to 35%.
Net cash provided by operating activities during 1999 was $242.2 million, an
increase of $27.2 million over 1998 due to the sale of trade receivables, other
changes in working capital items and increased depreciation and deferred taxes.
In March 1999, the Company entered into an agreement to sell, on a revolving
basis, an interest in a defined pool of trade accounts receivable of up to $100
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. At May 31, 1999, a $100 million
interest had been sold under this agreement with the proceeds used to reduce the
amount outstanding under the Company's revolving credit facility. Receivables
declined $10.1 million and inventories grew $51.8 million during 1999 primarily
due to the lower Steel shipments and realized prices. Accounts payable and
accrued expenses increased $3.7 million due to increased accounts payable and
interest accruals offset by lower tax accruals compared to $31.9 million in 1998
due to increased accounts payable from expanded operations and higher incentive,
interest and tax accruals.
Net cash used by investing activities was $463.5 million compared to $439.7
million during 1998, consisting principally of capital expenditure items.
Historically, capital expenditures have consisted of normal replacement and
technological upgrades of existing equipment and expansion of the Company's
operations. During 1999 expenditures for these activities were $96.2 million
down $64.3 million from 1998. The fiscal year 2000 capital expenditure budget is
estimated at $120 million. Capital expenditures for plant expansions included
$376.7 million incurred during 1999 for the construction of the Company's
Virginia steel facility. Production at this facility is scheduled to begin
during the August 1999 quarter. In addition, $2.6 million was incurred relating
to the expansion of the Company's Midlothian, Texas cement plant. The project
which is expected to be completed by the fall of 2000 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.
Net cash provided by financing activities was $222.2 million, compared to $221.6
million during the 1998 period. On June 5, 1998, TXI Capital Trust I, a Delaware
business trust wholly owned by the Company, issued 4,000,000 of its 5.5% Shared
Preference Redeemable Securities ("Preferred Securities") to the public. Holders
of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of $2.75 per Preferred Security accruing from
the date of issuance and payable quarterly in arrears commencing September 30,
1998. In September 1998, the Company issued $50 million variable-rate industrial
development bonds. The proceeds reimbursed the Company for costs incurred in
connection with the construction of sewage and solid waste disposal facilities
at the Company's Virginia steel plant. In May 1999, the Company issued
additional bonds in the amount of $20.5 million of which $103,000 was funded as
of May 31, 1999. The proceeds are available to reimburse future construction
costs for these facilities at its Midlothian cement plant. The bonds are
supported by letters of credit issued under the Company's revolving credit
facility. In March 1999, the Company increased the maximum borrowing limit on
its revolving credit facility from $350 million to $450 million and extended its
term until March 2004. At May 1999, $90.5 million was outstanding under the
credit facility and an additional $90.1 million had been utilized to support
letters of credit. During the year the Company purchased approximately $6.1
million of its Common Stock for general corporate purposes. The Company's
quarterly cash dividend at $.075 per common share has remained unchanged.
The Company generally finances its major capital expansion projects with long-
term borrowing. Maintenance capital expenditures and working capital are funded
by cash flow from operations. The Company expects cash from operations, and
borrowings under its revolving credit facility to be sufficient to provide funds
for capital expenditure commitments, scheduled debt repayments and working
capital needs during the next two years.
-13-
OTHER ITEMS
Litigation. On November 25, 1998, Chaparral Steel Company, 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; SGL Carbon
Corp.; UCAR Carbon Company, Inc. ("UCAR"), and UCAR International, Inc.
(collectively "Defendants") asserting causes of action for illegal restraints of
trade in the sale of graphite electrodes. In January 1999, SDC and its
affiliates settled with Chaparral Steel Company and were 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 preliminary 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.
Year 2000 Compliance. The Company created a task force comprised of
representatives from each of its 25 business units to identify Year 2000 issues.
An assessment of both the financial and management information systems and the
manufacturing process control, man-machine-interface and other operational
systems was conducted. Based on the results of that assessment, the task force
determined that modification or upgrading certain equipment and software would
be necessary. The task force members are actively engaged in, but have not yet
completed reviewing, correcting and testing all of the Year 2000 issues. In
addition, written contingency plans have been developed for all business units
and are continually being reassessed and updated.
The Company began converting its computerized business systems in 1992 in order
to upgrade system capabilities and utilize current hardware and software
technology. To date, substantially all of these systems have been converted and
the Company believes them to be Year 2000 compliant. The Company has conducted
internal investigations of its manufacturing process control systems and other
devices with embedded microprocessor controls and is substantially complete with
the upgrade or replacement of time sensitive programs or microprocessors and
testing compliance. Completion of all phases of the work is expected by the fall
of 1999. The Company believes that neither the cost of its planned upgrade and
modification program nor a failure to complete such program will have a material
impact on the operations or financial condition of the Company. During 1999
approximately $1.0 million was incurred with current estimates anticipating $1
to $2 million in additional Year 2000 expense.
To develop contingency plans the Company has contacted its critical suppliers
and others to determine the extent to which the Company would be vulnerable to
those third parties' failure to remediate their own Year 2000 issues. The
Company has received written assurances from the most critical business partners
and has not been informed of any material risks associated with other entities.
While the Company expects that it will not experience a disruption of its
operations, potential problem areas do exist which could materially affect
actual results. This would include the Company's inability to identify and
correct all computer codes or non-complying microprocessors embedded in other
digitally controlled equipment and the significant degree of interdependence
with third party suppliers, service providers and customers. In addition,
problems relating to the Company's dependency on public utilities,
transportation, postal, banking and telecommunication systems which are outside
of its control could disrupt the Company's ability to process orders,
manufacture and deliver finished goods, invoice customers or disburse or receive
funds.
-14-
The most reasonably likely worst case scenario with respect to the Company's own
operations would be a shut down of a production system caused by an unforeseen
problem with an automated monitoring or control device. The Company's
contingency planning continues to address risks and possible countermeasures
that include manual operation of control systems and equipment or the
replacement of certain equipment on an emergency basis. It is not possible,
however, to plan for all contingencies. The Company is unable to determine the
impact, material or otherwise, if other companies on which it relies do not
achieve Year 2000 compliance.
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.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995. Certain statements contained in this
annual report are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to risks,
uncertainties and other factors, which could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. Potential risks and uncertainties include, but are not limited to,
the impact of competitive pressures and changing economic conditions on the
Company's business and its dependence on residential and commercial construction
activity, Year 2000 issues, and the impact of environmental laws and other
regulations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The information required by this item is included in Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Auditors............................................................. 16
Consolidated Balance Sheets - May 31, 1999 and 1998........................................ 17
Consolidated Statements of Income - Years ended May 31, 1999, 1998 and 1997................ 18
Consolidated Statements of Cash Flows - Years ended May 31, 1999, 1998 and 1997............ 19
Consolidated Statements of Shareholders' Equity - Years ended May 31, 1999, 1998 and 1997.. 20
Notes to Consolidated Financial Statements................................................. 21
-15-
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Texas Industries, Inc.
We have audited the accompanying consolidated balance sheets of Texas
Industries, Inc. and subsidiaries as of May 31, 1999 and 1998, and the related
consolidated statements of income, cash flows, and changes in shareholders'
equity for each of the three years in the period ended May 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Texas Industries,
Inc. and subsidiaries at May 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended May 31, 1999, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
July 16, 1999
-16-
CONSOLIDATED BALANCE SHEETS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
May 31,
- --------------------------------------------------------------------------
In thousands 1999 1998
- --------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 17,652 $ 16,718
Notes and accounts receivable 43,119 151,235
Inventories 230,858 179,011
Prepaid expenses 18,776 24,948
---------- ----------
TOTAL CURRENT ASSETS 310,405 371,912
OTHER ASSETS
Real estate and other investments 19,925 13,302
Goodwill and other intangibles 155,349 153,375
Other 39,150 30,735
---------- ----------
214,424 197,412
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 148,184 142,701
Buildings 75,110 69,900
Machinery and equipment 952,657 889,228
Construction in progress 525,439 160,758
---------- ----------
1,701,390 1,262,587
Less allowances for depreciation 695,166 646,080
---------- ----------
1,006,224 616,507
---------- ----------
$1,531,053 $1,185,831
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 82,790 $ 80,495
Accrued interest, wages and other items 56,036 51,067
Current portion of long-term debt 9,168 13,382
---------- ----------
TOTAL CURRENT LIABILITIES 147,994 144,944
LONG-TERM DEBT 456,365 405,749
DEFERRED FEDERAL INCOME TAXES AND OTHER CREDITS 94,144 81,812
COMPANY-OBLIGATED MANATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY HOLDING
SOLELY COMPANY CONVERTIBLE DEBENTURES 200,000 --
SHAREHOLDERS' EQUITY
Common stock, $1 par value 25,067 25,067
Additional paid-in capital 257,773 255,735
Retained earnings 440,645 358,307
Cost of common stock in treasury (90,935) (85,783)
---------- ----------
632,550 553,326
---------- ----------
$1,531,053 $1,185,831
========== ==========
See notes to consolidated financial statements.
-17-
CONSOLIDATED STATEMENTS OF INCOME
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
Year Ended May 31,
- ------------------------------------------------------------------------------
In thousands except per share 1999 1998 1997
- ------------------------------------------------------------------------------
NET SALES $1,126,800 $1,196,275 $973,824
COSTS AND EXPENSES (INCOME)
Cost of products sold 889,502 938,418 767,030
Selling, general and administrative 104,604 95,088 76,535
Interest 11,310 20,460 18,885
Other income (22,713) (17,281) (11,848)
---------- ---------- --------
982,703 1,036,685 850,602
---------- ---------- --------
INCOME BEFORE THE FOLLOWING ITEMS 144,097 159,590 123,222
Income taxes 48,283 53,060 41,189
---------- ---------- --------
95,814 106,530 82,033
Dividends on preferred securities-net of tax (7,071) -- --
Minority interest in Chaparral -- (4,400) (6,559)
---------- ---------- --------
NET INCOME $ 88,743 $ 102,130 $ 75,474
========== ========== ========
BASIC
Average shares 21,265 21,110 21,751
Earnings per share $ 4.18 $ 4.85 $ 3.48
========== ========== ========
DILUTED
Average shares 24,492 21,819 22,163
Earnings per share $ 3.92 $ 4.69 $ 3.42
========== ========== ========
Cash dividends $ .30 $ .30 $ .25
========== ========== ========
See notes to consolidated financial statements.
-18-
CONSOLIDATED STATEMENTS OF CASH FLOWS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
Year Ended May 31,
- ------------------------------------------------------------------------------------------------------------
In thousands 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 88,743 $ 102,130 $ 75,474
Loss (gain) on disposal of assets (2,807) 503 2,131
Non-cash items
Depreciation, depletion and amortization 74,047 62,279 53,909
Deferred taxes 4,960 (1,892) 683
Undistributed minority interest -- 4,177 5,684
Other - net 5,868 7,274 6,367
Changes in operating assets and liabilities
Sale of receivables 100,000 -- --
Notes and accounts receivable 10,085 (7,666) (12,570)
Inventories and prepaid expenses (47,978) 14,472 (22,607)
Accounts payable and accrued liabilities 3,739 31,896 (3,552)
Real estate and investments 5,568 1,847 4,380
----------- --------- --------
Net cash provided by operations 242,225 215,020 109,899
INVESTING ACTIVITIES
Capital expenditures - expansions (379,240) (92,681) (678)
Capital expenditures - other (96,224) (160,561) (84,510)
Purchase of Riverside Cement Company -- (115,364) --
Purchase of Chaparral minority interest -- (72,175) --
Proceeds from disposal of assets 13,372 3,687 5,281
Other - net (1,436) (2,626) (3,733)
----------- --------- --------
Net cash used by investing (463,528) (439,720) (83,640)
FINANCING ACTIVITIES
Proceeds of long-term borrowing 313,186 338,836 69,206
Net proceeds from issuance of subsidiary preferred securities 193,504 -- --
Debt retirements (266,792) (109,225) (53,392)
Purchase of treasury shares (6,086) (1,098) (41,572)
Purchase of Chaparral stock -- -- (3,770)
Common dividends paid (6,349) (6,307) (5,361)
Other - net (5,226) (622) 409
----------- --------- --------
Net cash provided (used) by financing 222,237 221,584 (34,480)
----------- --------- --------
Increase (decrease) in cash 934 (3,116) (8,221)
Cash at beginning of year 16,718 19,834 28,055
----------- --------- --------
Cash at end of year $ 17,652 $ 16,718 $ 19,834
=========== ========= ========
See notes to consolidated financial statements.
-19-
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------
Common
Stock Additional Treasury Total
$1 Par Paid-in Retained Common Shareholders'
In thousands Value Capital Earnings Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------
May 31, 1996 $12,534 $266,303 $193,929 $(52,744) $420,022
Net income 75,474 75,474
Common dividends paid - $.25 a share (5,361) (5,361)
Shares issued under two-for-one stock
split 12,533 (12,533) --
Treasury shares issued for bonuses and
options - 262,497 shares 1,379 (1,268) 4,137 4,248
Treasury shares purchased -1,566,554
shares (41,572) (41,572)
------- -------- -------- -------- --------
May 31, 1997 25,067 255,149 262,774 (90,179) 452,811
Net income 102,130 102,130
Common dividends paid - $.30 a share (6,307) (6,307)
Treasury shares issued for bonuses and
options - 312,075 shares 586 (290) 5,494 5,790
Treasury shares purchased - 19,737 shares (1,098) (1,098)
------- -------- -------- -------- --------
May 31, 1998 25,067 255,735 358,307 (85,783) 553,326
Net income 88,743 88,743
Common dividends paid - $.30 a share (6,349) (6,349)
Treasury shares issued for bonuses and
options - 49,814 shares 2,038 (56) 934 2,916
Treasury shares purchased - 247,261 shares (6,086) (6,086)
------- -------- -------- -------- --------
May 31, 1999 $25,067 $257,773 $440,645 $(90,935) $632,550
======= ======== ======== ======== ========
At May 31, 1999, Common Stock and Additional Paid-in Capital include $127.8
million of accumulated transfers from Retained Earnings in connection with stock
dividends.
See notes to consolidated financial statements.
-20-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Texas Industries, Inc. ("TXI" or the "Company"), is a leading supplier of
construction materials through two business segments: cement, aggregate and
concrete products (the "CAC" segment); and structural steel and specialty bar
products (the "Steel" segment). Through the CAC segment, the Company produces
and sells cement, stone, sand and gravel, expanded shale and clay aggregate and
concrete products from facilities concentrated in Texas, Louisiana, and
California, with several products marketed throughout the United States. Through
its Steel segment, the Company produces and sells structural steel, specialty
bar products, merchant bar-quality rounds, reinforcing bar and channels for
markets in North America and, under certain market conditions, Europe and Asia.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. The minority interest represents
the separate public ownership of Chaparral Steel Company ("Chaparral"), which
was acquired by the Company on December 31, 1997. Certain amounts in the prior
period financial statements have been reclassified to conform to the current
period presentation.
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.
Acquisitions. On December 31, 1997, the Company acquired the minority interest
in Chaparral for cash consideration of $15.50 per share. The total acquisition
cost including transaction expenses net of related tax benefits is estimated at
$75.0 million. The excess of the acquisition cost over the fair value of the net
assets acquired, $32.7 million, was recorded as goodwill and is being amortized
over a 40-year period.
Effective December 31, 1997, the Company acquired Riverside Cement Company for
$115.4 million in cash and the assumption of certain liabilities. Riverside
Cement Company owns and operates cement plants in Crestmore and Oro Grande,
California with distribution terminals in the northern and southern parts of the
state. The purchase price was allocated to the net assets acquired based on
their fair values. The final valuation of the fair value of tangible assets
acquired and liabilities assumed was $65.8 million and $16.8 million,
respectively. The balance of the purchase price, $66.4 million, was recorded as
goodwill and is being amortized over a 40-year period. Pro forma results for
1998 and 1997 assuming the acquisition occurred on June 1, 1996 are not
presented because the effect of the acquisition is not material.
Intangible Assets. Goodwill and other intangibles is presented net of
accumulated amortization of $28.1 million at May 31, 1999 and $22.2 million at
May 31, 1998. The final valuation of the fair value of net assets acquired in
the December 31, 1997 purchase of Riverside Cement Company resulted in the
recognition of $7.7 million additional goodwill in 1999. Goodwill resulting from
the acquisitions of Chaparral Steel Company and Riverside Cement Company,
totaling $149.0 million at May 31, 1999 and $145.6 million at May 31, 1998 (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.
-21-
Other Credits. Other credits of $31.2 million at May 31, 1999 compared to $21.5
million at the prior year-end are composed primarily of liabilities related to
the Company's retirement plans and deferred compensation agreements.
Income Taxes. The Company joins in filing a consolidated return with its
subsidiaries. Current and deferred tax expense is allocated among the members of
the group based on a stand-alone calculation of the tax of the individual
member.
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 preferred securities, stock options and awards. In 1999, stock options
to purchase approximately 607,000 shares were not included in the computation of
diluted EPS because the effect would have been antidilutive.
Basic and Diluted EPS are calculated as follows:
---------------------------------------------------------------------------
In thousands except per share 1999 1998 1997
---------------------------------------------------------------------------
Earnings:
Net income $88,743 $102,130 $75,474
Contingent price amortization 233 233 233
------- -------- -------
Basic earnings 88,976 102,363 75,707
Dividends on preferred securities-net of tax 7,071 -- --
------- -------- -------
Diluted earnings $96,047 $102,363 $75,707
======= ======== =======
Shares:
Weighted-average shares outstanding 21,145 21,010 21,665
Contingently issuable shares 120 100 86
------- -------- -------
Basic weighted-average shares 21,265 21,110 21,751
Preferred securities 2,889 -- --
Stock option and award dilution 338 709 412
------- -------- -------
Diluted weighted-average shares 24,492 21,819 22,163
======= ======== =======
Basic earnings per share $ 4.18 $ 4.85 $ 3.48
======= ======== =======
Diluted earnings per share $ 3.92 $ 4.69 $ 3.42
======= ======== =======
WORKING CAPITAL
Working capital totaled $162.4 million at May 31, 1999, compared to $227.0
million at the prior year-end.
Notes and accounts receivable of $43.1 million at May 31, 1999, compared with
$151.2 million in 1998, are presented net of allowances for doubtful receivables
of $2.8 million in 1999 and $3.4 million in 1998.
On March 15, 1999, the Company entered into an agreement to sell, on a revolving
basis, an interest in a defined pool of trade receivables of up to $100 million.
The agreement is subject to annual renewal. The maximum amount outstanding
varies based upon the level of eligible receivables. Fees are variable and
follow commercial paper rates. At May 31, 1999, a $100 million interest had been
sold under this agreement with the proceeds used to reduce the amount
outstanding under the Company's revolving credit facility. The sale is reflected
as a reduction of accounts receivable and as operating cash flows. As
collections reduce previously sold interests, new accounts receivable are
customarily sold. Fees and expenses of $1.1 million are included in selling,
general and administrative expenses in 1999. The Company, as agent for the
purchaser, retains collection and administration responsibilities for the
participating interests of the defined pool.
-22-
Inventories are summarized as follows:
-----------------------------------------------------------------------------------
In thousands 1999 1998
-----------------------------------------------------------------------------------
Finished products $ 95,658 $ 59,290
Work in process 37,989 34,043
Raw materials and supplies 97,211 85,678
-------- --------
$230,858 $179,011
======== ========
Inventories are stated at cost (not in excess of market) with approximately 54%
of inventories using the last-in, first-out method (LIFO). If the average cost
method (which approximates current replacement cost) had been used, inventory
values would have been higher by $6.0 million in 1999 and $15.7 million in 1998.
LONG-TERM DEBT
Long-term debt is comprised of the following:
-----------------------------------------------------------------------------------
In thousands 1999 1998
-----------------------------------------------------------------------------------
Revolving credit facility maturing in 2004, interest rates
average 6.28% $ 90,500 $ 82,750
Senior notes
Notes due through 2017, interest rates average 7.28% 200,000 200,000
Notes due through 2008, interest rates average 7.28% 75,000 75,000
Notes due through 2004, interest rates average 10.2% 40,000 48,000
Note due through 1999, interest rate 14.2% -- 4,091
Variable-rate industrial development revenue bonds
Bonds maturing in 2028, interest rate approximately 3.5% 50,000 --
Bonds maturing in 2029, interest rate approximately 3.5%-net 103 --
Pollution control bonds, due through 2007, interest rate
5.81% (75% of prime) 6,575 7,255
Other, maturing through 2009, interest rates
from 8% to 10% 3,355 2,035
-------- --------
465,533 419,131
Less current maturities 9,168 13,382
-------- --------
$456,365 $405,749
======== ========
Annual maturities of long-term debt for each of the five succeeding years are
$9.2, $9.1, $8.9, $8.9 and $144.4 million.
The Company has available a bank-financed $450 million long-term revolving
credit facility. In addition to the $90.5 million currently outstanding under
this facility, $90.1 million has been utilized to support letters of credit. The
Company may select at the time of borrowing an interest rate at either prime or
the applicable margin above LIBOR. Commitment fees at a current annual rate of
.30% are paid on the unused portion of this facility.
On September 22, 1998, the Company issued $50 million variable-rate industrial
development bonds. The proceeds reimbursed the Company for costs incurred in
connection with the construction of sewage and solid waste disposal facilities
at its Virginia steel plant. On May 18, 1999, the Company issued additional
bonds in the amount of $20.5 million of which $103,000 was funded as of May 31,
1999. The proceeds are available to reimburse future construction costs at its
Midlothian cement plant. The bonds are supported by letters of credit issued
under the Company's revolving credit facility. The interest rates on these bonds
closely follow the tax-exempt commercial paper rates.
-23-
Loan agreements contain covenants that provide for restrictions on the payment
of dividends on common stock and limitations on purchases of treasury stock,
incurring certain indebtedness and making certain investments. Under the most
restrictive of these agreements, the aggregate amount of annual cash dividends
on common stock is limited based on the ratio of earnings before interest,
taxes, depreciation and amortization to fixed charges. The Company is in
compliance with all loan covenant restrictions.
The amount of interest paid was $33.4 million in 1999, $23.2 million in 1998 and
$19.3 million in 1997. Interest capitalized totaled $23.2 million in 1999, $4.6
million in 1998 and $190,000 in 1997.
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 1999 1998
-------------------------------------------------------------
Shares authorized 40,000 40,000
Shares outstanding at May 31 20,991 21,188
Shares held in treasury 4,076 3,879
Shares reserved for stock options and other 3,853 3,880
-24-
There are authorized 100,000 shares of Cumulative Preferred Stock, no par value,
of which 20,000 shares are designated $5 Cumulative Preferred Stock (Voting),
redeemable at $105 per share and entitled to $100 per share upon dissolution. On
March 29, 1996 the Company redeemed and retired all outstanding shares of such
$5 Cumulative Preferred Stock. An additional 25,000 shares are designated Series
B Junior Participating Preferred Stock. The Series B Preferred Stock is not
redeemable and ranks, with respect to the payment of dividends and the
distribution of assets, junior to (i) all other series of the Preferred Stock
unless the terms of any other series shall provide otherwise and (ii) the $5
Cumulative Preferred Stock. Pursuant to a Rights Agreement, in November 1996,
the Company distributed a dividend of one preferred share purchase right for
each outstanding share of the Company's Common Stock. Each right entitles the
holder to purchase from the Company one two-thousandth of a share of the Series
B Junior Participating Preferred Stock at a price of $122.50, subject to
adjustment. The rights will expire on November 1, 2006 unless the date is
extended or the rights are earlier redeemed or exchanged by the Company pursuant
to the Rights Agreement.
STOCK OPTION PLANS
The Company's stock option plans provide 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. The Company has elected to continue utilizing the accounting
prescribed by APB No. 25 for stock issued under these plans. If compensation
cost had been recognized based on the fair value at the date of grant consistent
with the method prescribed by Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company's
net income and earnings per share would have been reduced to the following pro
forma amounts:
-------------------------------------------------------------
In thousands except per share 1999 1998 1997
-------------------------------------------------------------
Net income
As reported $88,743 $102,130 $75,474
Pro forma 85,755 100,055 74,272
Basic earnings per share
As reported 4.18 4.85 3.48
Pro forma 4.04 4.75 3.42
Diluted earnings per share
As reported 3.92 4.69 3.42
Pro forma 3.80 4.64 3.39
Because the method of accounting under SFAS No. 123 has not been applied to
options granted prior to June 1, 1995, the pro forma compensation cost may not
be representative of that to be expected in future years.
The weighted-average fair value of options granted in 1999, 1998 and 1997 were
$12.15, $16.57 and $9.46, respectively. The fair value of each option grant was
estimated on the date of grant for purposes of the pro forma disclosures using
the Black-Scholes option-pricing model based on the following weighted average
assumptions:
-------------------------------------------------------------
1999 1998 1997
-------------------------------------------------------------
Dividend yield 1.02% .65% 1.05%
Volatility factor .331 .258 .240
Risk-free interest rate 4.85% 5.45% 6.38%
Expected life in years 6.4 6.4 6.4
-25-
A summary of option transactions for the three years ended May 31, 1999,
follows:
-----------------------------------------------------------------------------------------------------------
Shares Under Weighted-Average
Option Option Price
-----------------------------------------------------------------------------------------------------------
Outstanding at May 31, 1996 1,232,598 $15.98
Granted 809,200 26.96
Exercised (234,067) 10.35
Canceled (10,600) 22.66
--------- ------
Outstanding at May 31, 1997 1,797,131 21.62
Granted 365,550 46.27
Exercised (301,678) 16.05
Canceled (44,040) 21.35
--------- ------
Outstanding at May 31, 1998 1,816,963 27.51
Granted 293,250 31.45
Exercised (39,390) 13.85
Canceled (15,700) 30.61
--------- ------
Outstanding at May 31, 1999 2,055,123 $28.31
========= ======
Options exercisable as of May 31 were 795,753 shares in 1999, 430,213 shares in
1998 and 347,491 shares in 1997 at a weighted-average option price of $23.54;
$19.87 and $15.18, respectively. The following table summarizes information
about stock options outstanding as of May 31, 1999:
-----------------------------------------------------------------------------------------------------------
Range of Exercise Prices
$12.03 - $16.85 $21.84 - $32.54 $45.00 - $50.57
-----------------------------------------------------------------------------------------------------------
Options outstanding
Shares outstanding 372,909 1,259,664 422,550
Weighted-average remaining
life in years 5.19 7.59 8.68
Weighted-average exercise price $15.22 $25.95 $46.87
Options exercisable
Shares exercisable 294,949 428,094 72,710
Weighted-average exercise price $15.05 $25.54 $46.26
The Company has reserved 1,640,980 shares for future grants.
-26-
INCOME TAXES
The Company made income tax payments of $42.5 million, $48.5 million, and $39.5
million in 1999, 1998 and 1997, respectively.
The provisions for income taxes are composed of:
---------------------------------------------------------------------------
In thousands 1999 1998 1997
---------------------------------------------------------------------------
Current $43,323 $54,952 $40,506
Deferred 4,960 (1,892) 683
------- ------- -------
Expense * $48,283 $53,060 $41,189
======= ======= =======
* Excludes tax benefit of $3.8 million in 1999 related to preferred
securities of subsidiary.
A reconcilement from statutory federal taxes to the preceding provisions
follows:
---------------------------------------------------------------------------
In thousands 1999 1998 1997
---------------------------------------------------------------------------
Taxes at statutory rate $50,434 $55,856 $43,127
Additional depletion (4,663) (3,668) (2,984)
Nondeductible goodwill 981 830 702
State income tax 2,060 1,160 912
Nontaxable insurance benefits (455) (622) (664)
Other - net (74) (496) 96
------- ------- -------
$48,283 $53,060 $41,189
======= ======= =======
The components of the net deferred tax liability at May 31 are summarized below:
---------------------------------------------------------------------------
In thousands 1999 1998
---------------------------------------------------------------------------
Deferred tax assets
Deferred compensation $ 7,345 $ 7,119
Expenses not currently tax deductible 7,507 7,634
Tax cost in inventory -- 253
------- -------
Total deferred tax assets 14,852 15,006
Deferred tax liabilities
Accelerated tax depreciation 64,782 63,048
Deferred real estate gains 4,970 5,178
Tax cost in inventory 3,280 --
Other 1,305 1,305
------- -------
Total deferred tax liabilities 74,337 69,531
------- -------
Net tax liability 59,485 54,525
Less current portion (asset) (3,468) (5,771)
------- -------
Net deferred tax liability $62,953 $60,296
======= =======
-27-
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.
Riverside Cement Company ("Riverside"), acquired by the Company in December
1997, has received a proposed Administrative Order on Consent for De Minimis
Contributors, pursuant to which Riverside would pay the United States
Environmental Protection Agency ("USEPA") $108,788 to settle any legal
responsibilities it may have to the USEPA because of Riverside's disposal of
waste material at times between 1973 and 1989 at the Casmalia Disposal Site in
Santa Barbara County, California, and to obtain protection against contribution
actions by other potentially responsible parties to the USEPA action at the
Site.
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 14 under "Other Items" of Management's
Discussion and Analysis of Financial Condition and Results of Operations.
RETIREMENT PLANS
Substantially all employees of the Company are covered by a series of defined
contribution retirement plans. The amount of pension expense charged to costs
and expenses for the above plans was $3.2 million in 1999, $3.8 million in 1998
and $3.4 million in 1997. It is the Company's policy to fund the plans to the
extent of charges to income.
Certain employees and retirees of an acquired subsidiary are covered by defined
retirement and postretirement health benefit plans. The plan assets approximate
the plan benefit obligations. The postretirement liability for these plans was
$8.0 million at May 31, 1999. The amount of pension expense charged to costs and
expenses was $1.2 million in 1999 and $500,000 in 1998. Payments under these
plans amounted to $1.1 million in 1999 and $200,000 in 1998.
INCENTIVE PLANS
All personnel employed as of May 31 share in the pretax income of the Company
for the year then ended based on predetermined formulas. The duration of most of
the plans is one year; certain executives are additionally covered under a
three-year plan. All plans are subject to annual review by the Company's Board
of Directors. The expense included in selling, general and administrative was
$19.0 million, $17.7 million and $14.8 million for 1999, 1998 and 1997,
respectively.
Certain executives of Chaparral participate in a deferred compensation plan
based on a five-year average of earnings. Amounts recorded as expense under the
plan were $500,000, $2.3 million and $1.9 million for 1999, 1998 and 1997,
respectively.
-28-
OPERATING LEASES
Total expense for operating leases for mobile equipment, office space and other
items (other than for mineral rights) amounted to $20.7 million in 1999, $22.2
million in 1998 and $17.2 million in 1997. Non-cancelable operating leases with
an initial or remaining term of more than one year totaled $60.2 million at May
31, 1999. Annual lease payments for the five succeeding years are $20.4 million,
$13.3 million, $10.5 million, $10.1 million and $4.5 million.
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 its Steel segment, the
Company produces and sells structural steel, 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. Identifiable assets by segment are those assets that are used
in the Company's operation in each segment. Corporate assets consist primarily
of cash, real estate and other financial assets not identified with a major
business segment. Business segment information is presented on pages 10 and 11.
-29-
QUARTERLY FINANCIAL INFORMATION (Unaudited)
The following is a summary of quarterly financial information (in thousands
except per share):
-----------------------------------------------------------
1999 Aug. Nov. Feb. May
-----------------------------------------------------------
Net sales
CAC $ 168,877 $150,211 $148,453 $176,816
Steel 130,231 130,191 104,364 117,657
--------- -------- -------- --------
299,108 280,402 252,817 294,473
========= ======== ======== ========
Operating profit
CAC 45,923 39,363 27,938 52,086
Steel 6,996 4,489 133 1,332
--------- -------- -------- --------
52,919 43,852 28,071 53,418
========= ======== ======== ========
Net income 27,286 22,794 10,154 28,509
Per share
Net income
Basic 1.28 1.07 .48 1.35
Diluted 1.17 1.01 .48 1.25
Dividends .075 .075 .075 .075
Stock price
High 59 3/4 36 7/8 29 37
Low 32 19 9/16 23 1/16 21 5/8
-----------------------------------------------------------
1998 Aug. Nov. Feb. May
-----------------------------------------------------------
Net sales
CAC $ 118,054 $107,269 $106,901 $158,362
Steel 179,006 175,418 174,520 176,745
--------- -------- -------- --------
297,060 282,687 281,421 335,107
========= ======== ======== ========
Operating profit
CAC 32,727 25,298 16,869 32,832
Steel 16,019 22,695 20,799 28,012
--------- -------- -------- --------
48,746 47,993 37,668 60,844
========= ======== ======== ========
Net income 24,710 23,449 18,628 35,343
Per share
Net income
Basic 1.18 1.12 .88 1.67
Diluted 1.16 1.08 .85 1.60
Dividends .075 .075 .075 .075
Stock price
High 34 11/16 52 58 68 1/4
Low 23 5/8 33 5/16 42 1/2 50 3/4
Preferred securities were not included in the computation of diluted EPS
for the February 1999 quarter because the effect would have been
antidilutive.
-30-
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
-----------------------------------------------------
None
PART III
In accordance with paragraph (3) of General Instruction G to Form 10-K, Part III
of this report is omitted because the Registrant will file with the Securities
Exchange Commission, not later than 120 days after May 31, 1999, a definitive
proxy statement pursuant to Regulation 14A involving the election of Directors.
Reference is made to the sections of such proxy statement entitled "Section
16(a) Beneficial Ownership Reporting Compliance", "Security Ownership of Certain
Beneficial Owners", "Election of Directors", "Executive Compensation", "Report
of the Compensation Committee on Executive Compensation" and "Security
Ownership of Management", which sections of such proxy statement are
incorporated herein by reference. Information concerning the Registrant's
executive officers is set forth under Part I, Item 4A of this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) Documents filed as a part of this report.
(1) Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets - May 31, 1999 and 1998
Consolidated Statements of Income - Years ended May 31, 1999, 1998 and
1997
Consolidated Statements of Cash Flows - Years ended May 31, 1999, 1998
and 1997
Consolidated Statements of Shareholders' Equity - Years ended May 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Financial statement schedules have been omitted because they are not applicable
or the information required therein is included elsewhere in the financial
statements or notes thereto.
(3) Listing of Exhibits
2.1 Agreement and Plan of Merger dated as of July 30, 1997 among
Chaparral Steel Company, the Company and TXI Acquisition Inc.
incorporated by reference to Exhibit (c) of the Company's
Schedule 13E-3/A Transaction Statement dated November 28, 1997
and incorporated herein by reference.
3.1 Articles of Incorporation (previously filed and incorporated
herein by reference)
3.2 By-laws (previously filed and incorporated herein by reference)
4.1 Instruments defining rights of security holders (previously filed
and incorporated herein by reference)
The Registrant agrees to furnish to the Commission, upon request, copies of all
instruments with respect to long-term debt not being registered where the total
amount of securities authorized thereunder does not exceed 10% of the total
assets of Registrant and its subsidiaries on a consolidated basis.
-31-
(3) Listing of Exhibits-Continued
10.1 Partnership Interests Purchase Agreement with an effective date
of December 31, 1997 by and among TXI California Inc., TXI
Riverside Inc., RVC Venture Corp. and Ssangyong/Riverside Venture
Corp. filed with the Securities and Exchange Commission on Form
8-K dated January 26, 1998, and incorporated herein by reference.
10.2 $450,000,000 Third Amended and Restated Credit Agreement among
Texas Industries Inc., Certain Leaders, Certain Co-Agents and
NationsBank, N.A., as Administrative Lender dated March 10, 1999
filed with the Securities and Exchange Commission on Form 10-Q
dated April 9, 1999, and incorporated herein by reference.
10.3 Texas Industries, Inc. $80,000,000 7.15% Senior Notes, Series A,
due April 15, 2006; $40,000,000 7.20% Senior Notes, Series B, due
April 15, 2007; $10,000,000 7.28% Senior Notes, Series C, due
April 15, 2009; $45,000,000 7.395% Senior Notes, Series D, due
April 15, 2012; $25,000,000 7.59% Senior Notes, Series E, due
April 15, 2017 note agreement dated as of December 18, 1997 filed
with the Securities and Exchange Commission on Form 10-Q dated
April 10, 1998, and incorporated herein by reference.
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Auditors
24.1 Power of Attorney for certain members of the Board of Directors
27.1 Financial Data Schedule (electronically filed only)
This schedule contains summary financial information extracted from the
Registrant's May 31, 1999 Consolidated Financial Statements and is qualified in
its entirety by reference to such financial statements.
The remaining exhibits have been omitted because they are not applicable or the
information required therein is included elsewhere in the financial statements
or notes thereto.
(b) Reports on Form 8-K
None
-32-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the issuer has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 24th day of August, 1999.
TEXAS INDUSTRIES, INC.
By /s/ Robert D. Rogers
---------------------------------
Robert D. Rogers, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert D. Rogers President and Chief Executive Officer August 24, 1999
- -------------------------------
Robert D. Rogers (Principal Executive Officer)
/s/ Richard M. Fowler Vice President - Finance and August 24, 1999
- -------------------------------
Richard M. Fowler Chief Financial Officer
(Principal Financial Officer)
/s/ James R. McCraw Vice President - Accounting/Information Services August 24, 1999
- -------------------------------
James R. McCraw (Principal Accounting Officer)
_______________________________ Director August 24, 1999
Robert Alpert
/s/ John M. Belk * Director August 24, 1999
- -------------------------------
John M. Belk
/s/ Gordon E. Forward * Director August 24, 1999
- -------------------------------
Gordon E. Forward
/s/ Richard I. Galland * Director August 24, 1999
- -------------------------------
Richard I. Galland
/s/ Gerald R. Heffernan * Director August 24, 1999
- -------------------------------
Gerald R. Heffernan
/s/ James M. Hoak * Director August 24, 1999
- -------------------------------
James M. Hoak
/s/ Eugenio Clariond Reyes * Director August 24, 1999
- -------------------------------
Eugenio Clariond Reyes
/s/ Robert D. Rogers Director August 24, 1999
- -------------------------------
Robert D. Rogers
_______________________________ Director August 24, 1999
Ian Wachtmeister
/s/ Elizabeth C. Williams * Director August 24, 1999
- -------------------------------
Elizabeth C. Williams
* BY /s/ James R. McCraw Vice President - Accounting/Information Services August 24, 1999
-------------------------
James R. McCraw
-33-
INDEX TO EXHIBITS
Exhibits Page
2.1 Agreement and Plan of Merger dated as of July 30, 1997 among Chaparral
Steel Company, the Company and TXI Acquisition Inc., incorporated by
reference to Exhibit (c) of the Company's Schedule 13E-3/A Transaction
Statement dated November 28, 1997................................................... *
3.1 Articles of Incorporation........................................................... *
3.2 By-Laws............................................................................. *
4.1 Instruments defining rights of security holders..................................... *
10.1 Partnership Interests Purchase Agreement with an effective date of
December 31, 1997 by and among TXI California Inc., TXI Riverside
Inc., RVC Venture Corp. and Ssangyong/Riverside Venture Corp. filed
with the Securities and Exchange Commission on Form 8-K dated January
26, 1998............................................................................ *
10.2 $450,000,000 Third Amended and Restated Credit Agreement among Texas
Industries Inc., Certain Leaders, Certain Co-Agents and NationsBank,
N.A., as Administrative Lender dated March 10, 1999 filed with the
Securities and Exchange Commission on Form 10-Q dated April 9, 1999................. *
10.3 Texas Industries, Inc. $80,000,000 7.15% Senior Notes, Series A, due
April 15, 2006; $40,000,000 7.20% Senior Notes, Series B, due April
15, 2007; $10,000,000 7.28% Senior Notes, Series C, due April 15,
2009; $45,000,000 7.395% Senior Notes, Series D, due April 15, 2012;
$25,000,000 7.59% Senior Notes, Series E, due April 15, 2017 note
agreement dated as of December 18, 1997 filed with the Securities and
Exchange Commission on Form 10-Q dated April 10, 1998............................... *
21.1 Subsidiaries of the Registrant...................................................... 35
23.1 Consent of Independent Auditors..................................................... 36
24.1 Power of Attorney for certain members of the Board of Directors..................... 37
27.1 Financial Data Schedule............................................................. **
* Previously filed and incorporated herein by reference.
** Electronically filed only.
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