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 (FEE REQUIRED).
For the fiscal year ended May 31, 1996
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 (214)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. [X].
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, 1996 was $737,175,858.
As of August 19, 1996, 11,150,880 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 15, 1996, 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................................... 5
Item 4a. Executive Officers of the Registrant.................................................. 6
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters.......... 7
Item 6. Selected Financial Data............................................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 8
Item 8. Financial Statements and Supplementary Data........................................... 12
Item 9. Disagreements on Accounting and Financial Disclosures................................. 27
PART III
Item 10. Directors and Executive Officers of the Registrant.................................... 28
Item 11. Executive Compensation................................................................ 28
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 28
Item 13. Certain Relationships and Related Transactions........................................ 28
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 28
PART I
ITEM 1. BUSINESS
--------
(a) General Development of Business
Texas Industries, Inc. (the "Registrant", "Company" or "TXI"), incorporated
April 19, 1951, directly and through subsidiaries, is a producer of steel and
cement/concrete products for the construction and manufacturing industries.
Chaparral Steel Company ("Chaparral"), an 84 percent-owned subsidiary produces a
broad range of high quality carbon steel products from recycled steel.
Brookhollow Corporation ("Brookhollow"), a wholly-owned subsidiary, owns land
for investment, resale and other real estate activities.
(b) Financial Information about Industry Segments
The Registrant has two major industry segments: steel and cement/concrete.
Financial information for the Registrant's industry segments, is presented in
Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 9 and 10, incorporated herein by reference.
(c) Narrative Description of Business
STEEL
Chaparral has operated a steel mill at Midlothian, Texas, since 1975. The steel
operation follows a market mill concept which entails the low cost production of
a wide variety of products ranging from reinforcing bar and specialty products
to large-sized structural beams. Chaparral operates 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, merchant quality rounds, special bar quality rounds, rebar and channels.
In fiscal year 1992, commissioning was completed on the large beam mill which
produces structural steel beams up to twenty-four inches wide.
The rated annual capacity of the operating facilities are as follows:
Annual Rated Productive Approximate
Capacity (Tons) Facility Square Footage
----------------------- -----------------------
Melting 1,600,000 265,000
Rolling 1,900,000 560,000
The bar and structural mills produced approximately 1.6 million tons of finished
products in 1996, and 1.4 million tons in both 1995 and 1994.
Chaparral's primary raw material is recycled steel, with shredded steel
representing 41 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 25 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
Chaparral's control. The supply of recycled steel is expected to be adequate to
meet future requirements.
Chaparral's 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 six-month price adjustments which reflect
increases or decreases in the utility's fuel costs. Natural gas is obtained from
a local gas utility under a supply contract. Chaparral believes that adequate
supplies of both electricity and natural gas are readily available.
-1-
Chaparral's products are marketed throughout the United States and to a limited
extent in Canada, Mexico, Western Europe, China and Japan. 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. At present, Chaparral has approximately 1,700 customers with
one customer accounting for 11% of Chaparral's sales in 1996. 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. Currently, Chaparral does not place heavy reliance on
franchises, licenses or concessions.
Chaparral 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 Chaparral.
Intense sales competition exists for substantially all of Chaparral's products.
CEMENT/CONCRETE
The cement/concrete business segment includes the manufacture and sale of
cement, aggregates, ready-mix concrete, concrete pipe, block and brick.
Production and distribution facilities are concentrated primarily in Texas and
Louisiana with markets extending into contiguous states. The Registrant acquired
expanded shale and clay aggregate facilities in California during 1996, and in
addition has certain patented and unpatented mining claims in southern
California which contain deposits of limestone.
Cement production facilities are located at two sites in Texas: one at
Midlothian, approximately 25 miles south of Dallas/Fort Worth, which is the
largest cement plant in Texas, and the other at Hunter, approximately 40 miles
south of Austin. The limestone reserves used as the primary raw material are
located on fee-owned property which is adjacent to each of these plants. The
rated annual capacity and estimated minimum reserves of limestone for each of
these plants are as follows:
Annual Rated Productive Estimated Minimum
Plant Capacity - (Tons of Clinker) Reserves - Years
----- ---------------------------- -----------------
Midlothian, Texas 1,200,000 100
Hunter, Texas 830,000 100
The cement plants produced approximately 2.2 million tons of finished cement in
1996, 2.1 million tons in 1995 and 2.0 million tons in 1994. Annual shipments of
finished cement to outside trade customers were approximately 1.5 million tons
in both 1996 and 1995, and 1.6 million tons in 1994. Additional shipments of
clinker were approximately 400,000 tons in 1994.
The Registrant's principal marketing area for cement includes Texas, Louisiana,
Colorado, Oklahoma, and New Mexico. Sales offices are maintained throughout the
marketing area and sales are made primarily for use in the construction industry
to numerous customers, no one of which would purchase ten percent or more of the
trade sales volume within any one year. The major volume of unit trade sales is
of standard portland cement, although the Registrant produces and markets a
variety of specialty cements.
The Registrant distributes cement from its plants by rail or truck to six
distribution terminals located throughout the marketing area.
The Registrant's aggregate business, which includes sand, gravel, crushed
limestone and expanded shale and clay, is conducted from facilities primarily
serving Dallas/Fort Worth, Austin and Houston, Texas, and Alexandria, New
Orleans, Baton Rouge, and Monroe, Louisiana, areas. Additional expanded shale
and clay aggregate facilities were acquired during 1996 near Oakland and Los
Angeles, California. The following table summarizes certain information about
the Registrant's aggregate production facilities:
-2-
Estimated Annual Estimated
Type of Number of Productive Minimum
General Location Facility Plants Capacity Reserves - Years
- ------------------ -------- --------- ---------------- ----------------
North Central Texas Sand & Gravel 3 3.0 million tons 11
North Central Texas Crushed
Limestone 1 5.5 million tons 27
North Central and Expanded Shale
South Texas & Clay 2 1.2 million cu. yds. 25
California Expanded Shale
& Clay 2 .6 million cu. yds. 13
Louisiana Sand & Gravel 10 5.8 million tons 9
Central Texas Sand & Gravel 2 2.1 million tons 12
South Central
Oklahoma Sand & Gravel 1 1 million tons 11
Reserves identified with the facilities shown above and additional reserves
available to support future plant sites are contained on 34,675 acres of land,
15,368 acres of which are owned in fee by the Registrant and the remainder of
which are leased. The expanded shale and clay plants, excluding California
plants purchased in January 1996, operated at 84 percent of capacity for 1996
with sales of approximately 831,000 cubic yards. Production for the remaining
aggregate facilities was 74 percent of practical capacity and sales for the year
totaled 12.7 million tons, of which approximately 9.1 million tons were shipped
to outside trade customers.
Sales of these various aggregates are generally related to the level of
construction activity within close proximity of the plant location. The cost of
transportation limits the marketing of these products to the areas relatively
close to the plant sites. These products are marketed by the Registrant'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 Registrant'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 Registrant's ready-mix concrete operations are situated in three areas in
Texas (Dallas/Fort Worth/Denton, East Texas and Houston), three areas in
Louisiana (Alexandria, Shreveport and Monroe) and at one location in southern
Arkansas. The following table summarizes various information concerning these
facilities:
Location Number of Plants Number of Trucks
-------- ---------------- ----------------
Texas 23 253
Louisiana 19 114
Arkansas 1 5
The plants listed above are located on sites owned or leased by the Registrant.
The Registrant 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
Registrant's business.
-3-
The remainder of the major products manufactured and marketed by the Registrant
within the concrete products segment are summarized by location below:
Location Products Produced/Sold
-------- ----------------------
Dallas/Fort Worth, Texas Concrete block and brick
Sakrete and related products
Austin, Texas Sakrete and related products
Houston, Texas Sakrete and related products
Corpus Christi, Texas Concrete block and pipe
New Orleans, Louisiana Concrete pipe
Baton Rouge, Louisiana Concrete pipe
Alexandria, Louisiana Concrete block and brick
Concrete pipe
Shreveport, Louisiana Concrete block and pipe
Sakrete and related products
Bridge Spans
Clay Brick
Athens, Texas Clay Brick
Mineral Wells, Texas Clay Brick
The plant sites for the above products (except for three that are leased) are
owned by the Registrant. The products are marketed by the Registrant's sales
force in each of these locations, and are primarily delivered by trucks owned by
the Registrant. 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 Registrant's business.
Currently, the Registrant does not place heavy reliance on patents, franchises,
licenses or concessions related to its cement/concrete segment. The
Registrant's cement plants and expanded shale and clay plants can burn either
coal, natural gas or other high BTU fossil fuels.
In most of the Registrant's principal markets for concrete products, the
Registrant competes vigorously with at least three other vertically integrated
concrete companies. The Registrant 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.
The Registrant 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.
-4-
ENVIRONMENTAL MATTERS
The operations of the Company and its subsidiaries 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.
Chaparral'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 Chaparral collects in
baghouses, as a hazardous waste. Chaparral 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, Chaparral
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. Notwithstanding such
compliance, if damage 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 may be held liable for such damages and be required to pay the cost of
investigation and remediation of such contamination. The amount of such
liability could be material. Changes in federal or state laws, regulations or
requirements or discovery of unknown conditions could require additional
expenditures by or provide additional benefits to the Company.
OTHER ITEMS
The Registrant provides products for the construction industry. It is not
uncommon for the Registrant to report a loss from its cement/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 Registrant's backlog of orders is not
considered material to an understanding of the business of the Registrant.
The Registrant's enterprise employs approximately 3,000 persons, of whom 1,200
are engaged in steel operations and the balance in cement/concrete.
ITEM 2. PROPERTIES
----------
The information required by this item is included in the answer to Item 1.
ITEM 3. LEGAL PROCEEDINGS
-----------------
There are no pending legal proceedings against the Registrant and subsidiaries
which in management's judgment (based upon the opinion of counsel) would have a
material adverse effect on the consolidated financial position of the
Registrant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
-5-
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 60 President and Chief Executive Officer and Director
Barry M. Bone 38 Vice President - Real Estate (since 1995);
Director of Corporate Real Estate
(1991 to 1995)
President, Brookhollow Corporation
Melvin G. Brekhus 47 Vice President - Cement (since 1995); Vice
President - Cement Production (1991 to 1995)
Brooke E. Brewer 54 Vice President - Human Resources
Roman J. Figueroa 50 Vice President - Aggregates
Richard M. Fowler 53 Vice President - Finance and Chief Financial Officer
James R. McCraw 52 Vice President - Controller
Robert C. Moore 62 Vice President - General Counsel and Secretary
Tommy A. Valenta 47 Vice President - Concrete (since 1995); Vice
President - North Texas Concrete/Cement
Marketing (1991 to 1995)
Kenneth R. Allen 39 Treasurer
-6-
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, 1996, the approximate
number of shareholders of common stock of the Registrant was 4,017. Common stock
market prices, dividends and certain other items are presented in the Notes to
Consolidated Financial Statements entitled "Quarterly Financial Information" on
page 24, incorporated herein by reference. The restriction on the payment of
dividends described in the Notes to Consolidated Financial Statements entitled
"Long-Term Debt" on page 20 is incorporated herein by reference. At the January
1995 Board of Directors' meeting, the Directors voted to increase the quarterly
cash dividend from five cents per share to ten cents per share.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
- ---------------------------------------------------------------------------------------------
$ In thousands except per share 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Net sales $967,449 $830,526 $707,147 $614,292 $601,129
Operating profit 165,904 112,635 82,130 44,572 47,207
Net income 79,954 48,017 25,751 1,058 1,920
Return on average common equity 21.0% 13.8% 8.1% .4% .7%
PER SHARE INFORMATION
Net income (primary) $ 7.05 $ 3.88 $ 2.29 $ .11 $ .19
Cash dividends .40 .30 .20 .20 .20
Book value 36.94 27.61 31.14 25.49 25.50
FOR THE YEAR
Cash from operations $127,463 $115,864 $ 51,372 $ 49,361 $ 26,217
Capital expenditures 79,300 48,751 23,305 17,212 21,621
YEAR END POSITION
Total assets $801,063 $753,055 $749,120 $757,300 $776,738
Net working capital 219,345 187,603 161,383 159,408 134,806
Long-term debt 160,209 185,274 171,263 267,243 289,390
Shareholders' equity 420,022 343,109 352,671 282,511 281,902
Long-term debt to total
capitalization 27.6% 35.1% 32.7% 48.6% 50.7%
OTHER INFORMATION
Average common shares
outstanding (in 000's) 11,371 12,426 11,327 11,085 11,056
Number of common stockholders 4,017 4,445 4,647 5,061 5,432
Number of employees 3,000 2,800 2,700 2,700 2,700
Wages, salaries and employee
benefits $141,233 $114,366 $102,853 $ 96,891 $ 97,950
Common stock prices
(high-low) 69 - 35 39 - 29 39 - 21 28 - 19 25 - 18
-7-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
----------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
GENERAL
The Company has two major business segments: steel and cement/concrete. The
steel operation produces beams, merchant and special bar quality rounds,
reinforcing bars, and channels. The cement/concrete segment supplies cement and
aggregates, ready-mix, pipe, block and brick.
The steel plant follows a market mill concept which entails producing a wide
variety of products utilizing recycled steel as its principal raw material.
Chaparral 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. Chaparral distributes
primarily to markets in North America and, under certain market conditions,
Europe and Asia.
The cement/concrete facilities are concentrated primarily in Texas and
Louisiana, with several products marketed throughout the U.S. As a vertically
integrated concrete products supplier, TXI owns or leases some 50,000 acres of
mineral-bearing land. Both steel and cement/concrete operations require large
amounts of capital investment, energy, labor and maintenance.
Corporate resources, which are excluded from operating profit, include the
president's office as well as certain financial, legal, environmental, personnel
and public ownership expenses, none of which are allocated to operations.
Brookhollow's real estate activities are also included in corporate resources.
RESULTS OF OPERATIONS
NET SALES
Consolidated 1996 net sales of $967.4 million surpassed the 1995 record by 16%.
Steel sales were $607.7 million, up $75.8 million from the previous year due to
a 9% increase in average selling price and 79,000 ton increase in shipments to a
record 1,590,000 tons. Demand from service centers, fabricators and the mobile
home industry for structural mill products increased substantially from the
prior year. Prices for structural mill products increased 13% in 1996. Bar mill
shipments were 5% below the previous year on somewhat lower average selling
prices. Chaparral uses its ability to adjust its product mix to maximize profit
margins.
Cement/concrete sales, at $359.8 million grew 20% over the prior year as a
result of continued price improvements and increased volumes. Cement average
trade pricing was up 11% over 1995 on 6% higher shipments. Ready-mix net sales
reflect a 28% increase in volume from expanded capacity and a 5% increase in
average trade prices. Aggregate sales improved 22% on 27% higher volumes while
overall average trade prices declined slightly due to product mix.
Consolidated 1995 net sales increased 17% over 1994 to a record $830.5 million.
Steel sales climbed 15% to $531.8 million, as tons shipped increased 11%, while
average unit selling prices grew 4%. Based on dollar sales, product mix favored
slightly the bar mill as sales of Special Bar Quality grew by $22 million on 21%
higher shipments. Bar mill pricing overall averaged 8% higher than 1994, while
structural mill pricing was up 2%. Pricing in 1995 trended up steadily each
quarter, whereas pricing trends in 1994, by comparison, were mixed. Demand for
structural products improved throughout 1995. The 408,000 steel tons shipped in
the fourth quarter surpassed the May 1989 record.
Cement/concrete sales in 1995 of $298.7 million exceeded 1994 by 22%. Cement
shipments, although hampered by rain in March and April, increased 5%. Cement
trade pricing averaged 18% higher; ready-mix was up 5%; stone, sand and gravel
averaged 7% more, although product mix distorted a generally higher trend.
Ready-mix sales increased 33% due principally to capacity added in north Texas.
Additional capacity was added in north Louisiana in May 1995. Cement demand in
Texas continued to be in balance with supply.
-8-
BUSINESS SEGMENTS
Year ended May 31,
- ---------------------------------------------------------------------------------------
In thousands 1996 1995 1994
- ---------------------------------------------------------------------------------------
NET SALES
Bar mill $157,130 $167,962 $138,353
Structural mills 447,115 359,845 320,210
Transportation service 3,411 4,004 3,712
-------- -------- --------
TOTAL STEEL 607,656 531,811 462,275
Cement 137,773 115,531 93,181
Ready-mix 154,105 114,568 86,213
Stone, sand & gravel 78,198 64,285 56,736
Other products 70,690 58,615 50,239
Interplant (80,973) (54,284) (41,497)
-------- -------- --------
TOTAL CEMENT/CONCRETE 359,793 298,715 244,872
-------- -------- --------
TOTAL NET SALES $967,449 $830,526 $707,147
======== ======== ========
UNITS SHIPPED
Bar mill (tons) 453 475 424
Structural mills (tons) 1,137 1,036 938
-------- -------- --------
TOTAL STEEL TONS 1,590 1,511 1,362
Cement (tons) 2,363 2,226 2,120
Ready-mix (cubic yards) 3,088 2,415 1,913
Stone, sand & gravel (tons) 15,706 12,375 11,649
STEEL OPERATIONS
Gross profit $130,050 $ 94,761 $ 81,777
Less: Depreciation & amortization 32,493 33,887 33,756
Selling, general & administrative 26,099 20,362 15,937
Other income (4,318) (3,116) (3,372)
-------- -------- --------
OPERATING PROFIT 75,776 43,628 35,456
CEMENT/CONCRETE OPERATIONS
Gross profit 128,246 101,678 75,334
Less: Depreciation, depletion &
amortization 15,964 14,669 14,458
Selling, general & administrative 23,867 20,806 17,330
Other income (1,713) (2,804) (3,128)
-------- -------- --------
OPERATING PROFIT 90,128 69,007 46,674
-------- -------- --------
TOTAL OPERATING PROFIT $165,904 $112,635 $ 82,130
-9-
BUSINESS SEGMENTS--Continued
Year ended May 31,
- -------------------------------------------------------------------------------
In thousands 1996 1995 1994
- -------------------------------------------------------------------------------
CORPORATE RESOURCES
Other income $ 7,088 $ 1,651 $ 2,114
Less: Depreciation & amortization 823 786 748
Selling, general &
administrative 17,168 15,502 13,677
-------- -------- --------
(10,903) (14,637) (12,311)
INTEREST EXPENSE (19,960) (20,117) (26,231)
-------- -------- --------
INCOME BEFORE TAXES &
OTHER ITEMS $135,041 $ 77,881 $ 43,588
======== ======== ========
CAPITAL EXPENDITURES
Steel $ 20,630 $ 16,234 $ 7,805
Cement/concrete 57,628 27,781 15,252
Corporate 1,042 4,736 248
-------- -------- --------
$ 79,300 $ 48,751 $ 23,305
======== ======== ========
IDENTIFIABLE ASSETS
Steel $475,337 $469,827 $488,307
Cement/concrete 243,081 189,096 159,133
Corporate 82,645 94,132 101,680
-------- -------- --------
$801,063 $753,055 $749,120
======== ======== ========
See notes to consolidated financial statements.
COST OF PRODUCTS SOLD
Consolidated cost of products sold, including depreciation, depletion and
amortization, was $756.7 million in 1996, an increase of $74.9 million over the
prior year. Steel cost of sales, at $510.0 million, increased $40.6 million due
to greater shipments and a 4% increase in average cost per ton. Higher scrap
and melt shop conversion costs contributed to the increase, as well as, slightly
higher combined rolling costs. Cement/concrete costs of $246.7 million
represented a 17% increase over the prior year due to higher volumes. Unit
manufacturing cost of cement was comparable to 1995.
The 1995 cost of products sold was $681.8 million, reflecting increased
shipments and somewhat higher steel scrap and melt shop conversion costs. Steel
costs were $56.7 million higher at $470.9 million. Purchased scrap costs were
unchanged during 1995 and remain at record high per ton rates. Cement/concrete
costs of $210.9 million surpassed 1994 by $26.5 million. Cement costs were
$11.7 million greater in 1995 due to the absence of clinker sales which reduced
1994 costs. Sale of finished cement is more profitable than clinker, however.
Unit manufacturing cost of cement was lower in 1995 due to improved fuel savings
and higher volume efficiency.
-10-
OPERATING PROFIT
Record operating profit of $165.9 million represents a 47% increase over 1995
which had set record profits as well. Both businesses continued to improve
significantly. Steel profits grew $32.1 million as unit margins improved 27%
during the year. Cement/concrete profits rose $21.1 million. Increased
shipments combined with higher cement prices of approximately $6 per ton and
flat unit manufacturing costs contributed to improved margins.
Operating profit in 1995 of $112.6 million surpassed 1994 by 37%, or $30.5
million, as both businesses improved dramatically. Steel profits jumped $8.1
million as average price increases of $13 per ton exceeded unit cost increases
of $8. Cement/concrete added an additional $22.3 million to post a record $69.0
million profit. Greater shipments with higher pricing lead to this improvement.
Cement prices rose more than $7 per ton during the year while unit costs were
level with 1994.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES AND OTHER INCOME
Selling, general and administrative expenses including depreciation and
amortization increased $10.6 million to $68.9 million, principally due to higher
provisions for employee incentive and profit sharing expense in both operations
and corporate resources. Steel costs at $26.2 million increased $5.8 million;
cement/concrete at $24.7 million increased $3.1; and corporate resources at
$18.0 million increased $1.7 million. Total 1995 SG&A including both operations
and corporate resources was $58.3 million, an increase of $11.0 million over
1994 primarily on additional incentive expense and selling costs.
Combined other income was $13.1 million in 1996, an increase of $5.5 million
over the previous year. Corporate resources other income included $6.1 million
generated by the Company's real estate operations during 1996. Combined other
income was $7.6 million in 1995 from routine asset retirements, real estate
operations and investment income.
INTEREST EXPENSE
Interest expense, at $20.0 million in 1996, remained comparable to the prior
year. In 1995, interest expense declined $6.1 million as a result of debt
retirements and the effect of a significant TXI debt refinancing and rate
reduction in 1994.
FINANCIAL CONDITION
Net income at $80.0 million was $31.9 million higher than the previous year.
Increased operating profits due to both higher selling prices and shipments,
resulted in the 66% improvement in earnings. Cash provided by operations
increased to a record $127.5 million funding capital expenditures of $79.3
million, long-term debt reductions of $25.1 million and repurchases of Chaparral
stock of $12.5 million. Bank financing in the amount of $75 million was
replaced by long-term fixed rate debt. Shareholders' equity increased $76.9
million to $420.0 million. Long-term debt to total capitalization ratio at May
31, 1996 was 27.6%, down from 35.1% at the prior year-end.
Working capital grew $31.7 million to $219.3 million. Notes and accounts
receivable increased to $113.8 million from $99.4 million in 1995 on higher
sales. Receivable increases in 1996 were $9.2 million lower than 1995, in which
average days outstanding increased. Sales were up 33% in May 1995 over the
prior May due partly to drier weather. Chaparral increased inventories in 1996
by $20.4 million reflecting higher raw material costs. Chaparral inventories had
declined during 1995 by $16.2 million. These changes in inventory levels
decreased cash provided by operations by $36.6 million from 1995 to 1996.
Property sales from the Company's real estate operations in 1996 provided $5.3
million in operating cash, net of $6.9 million in additional short-term notes
receivable.
-11-
FINANCIAL CONDITION--Continued
Capital expenditures totaled $79.3 million in 1996, $20.6 million in Chaparral
and $58.7 million in TXI. The anticipated 63% increase in expenditures reflect
expansion projects in the cement/concrete operations, as well as, normal
replacement and technological upgrades of existing equipment. Additional items
of transportation and aggregate handling equipment have been leased. Capital
budget plans for 1997 are expected to reach $100 million, as the Company
continues to utilize its increased operating cash to expand and upgrade its
operations.
Financing activities used $44.7 million cash in 1996, a decline of $29.8 million
from 1995. In April 1996, the Company concluded the placement of $75 million in
fixed-rate senior notes having an average maturity of 10 years and average
interest rate of 7.28%. The proceeds were used to repay borrowings under the
Company's $150 million long-term bank line of credit. At May 31, 1996, $9
million was outstanding and an additional $7.7 million utilized to support
letters of credit under the credit line, compared to $98.7 million utilized at
the end of 1995. The credit line expires in September 2000. Chaparral did not
renew its short-term credit facilities of $20 million which expired January 31,
1996. No borrowings had been made during 1996 or 1995. Chaparral purchased
$12.5 million of its common stock during 1996 pursuant to a decision announced
in October 1995 authorizing the repurchase of shares to satisfy obligations
under its stock option program and for other corporate purposes. In 1995, TXI
purchased $54.7 million in treasury shares. On March 29, 1996, the Company
redeemed and retired the remaining 5,976 shares of $5 Cumulative Preferred
Stock. TXI's cash dividends increased 23% in 1996 over the previous year as the
quarterly amount was doubled in January 1995 to $.10 per share. Due to the 1.2
million treasury share purchase in April 1995, average outstanding shares in
1996 returned to levels comparable to those before the April 1994 conversion of
$46.9 million in debentures to common stock.
The Company generally maintains a policy of financing major capital expansion
projects with long-term borrowing. Working capital, investments and replacement
assets are funded out of cash flow from operations. The Company expects current
financial resources and cash from 1997 operations to be sufficient to provide
funds for planned capital expenditures, scheduled debt payments and other known
working capital needs for fiscal 1997. If additional funds are required to
accomplish long-term expansion of operations, management believes that funding
can be obtained through lending or equity sources to meet such requirements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Auditors.............................................................. 13
Consolidated Balance Sheets - May 31, 1996 and 1995......................................... 14
Consolidated Statements of Income - Years ended May 31, 1996, 1995 and 1994................. 15
Consolidated Statements of Cash Flows - Years ended May 31, 1996, 1995 and 1994............. 16
Consolidated Statements of Shareholders' Equity - Years ended May 31, 1996, 1995 and 1994... 17
Notes to Consolidated Financial Statements.................................................. 18
-12-
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended May 31, 1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
July 12, 1996
-13-
CONSOLIDATED BALANCE SHEETS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
May 31,
- -------------------------------------------------------------------------
In thousands 1996 1995
- -------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 28,055 $ 25,988
Notes and accounts receivable 113,762 99,445
Inventories 150,526 125,384
Prepaid expenses 32,574 41,957
-------- --------
TOTAL CURRENT ASSETS 324,917 292,774
OTHER ASSETS
Real estate and other investments 19,751 29,392
Goodwill 59,210 61,217
Other 21,880 22,533
-------- --------
100,841 113,142
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 110,836 105,874
Buildings 60,610 54,749
Machinery and equipment 766,434 737,222
-------- --------
937,880 897,845
Less allowances for depreciation 562,575 550,706
-------- --------
375,305 347,139
-------- --------
$801,063 $753,055
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 56,652 $ 57,019
Accrued interest, wages and other items 35,446 30,675
Current portion of long-term debt 13,474 17,477
-------- --------
TOTAL CURRENT LIABILITIES 105,572 105,171
LONG-TERM DEBT 160,209 185,274
DEFERRED FEDERAL INCOME TAXES AND OTHER CREDITS 80,139 80,178
MINORITY INTEREST 35,121 39,323
SHAREHOLDERS' EQUITY
Preferred stock -- 598
Common stock, $1 par value 12,534 12,534
Additional paid-in capital 266,303 266,045
Retained earnings 193,929 119,587
Cost of common shares in treasury (52,744) (55,655)
-------- --------
420,022 343,109
-------- --------
$801,063 $753,055
======== ========
See notes to consolidated financial statements.
-14-
CONSOLIDATED STATEMENTS OF INCOME
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
Year Ended May 31,
- --------------------------------------------------------------------------------
In thousands except per share 1996 1995 1994
- --------------------------------------------------------------------------------
NET SALES $967,449 $830,526 $707,147
COSTS AND EXPENSES (INCOME)
Cost of products sold 756,715 681,824 598,601
Selling, general and administrative 68,852 58,275 47,341
Interest 19,960 20,117 26,231
Other income (13,119) (7,571) (8,614)
-------- -------- --------
832,408 752,645 663,559
-------- -------- --------
INCOME BEFORE THE FOLLOWING ITEMS 135,041 77,881 43,588
INCOME TAXES
Expense 47,256 25,700 13,607
Change in statutory federal tax rate -- -- 1,949
-------- -------- --------
47,256 25,700 15,556
-------- -------- --------
87,785 52,181 28,032
Minority interest in Chaparral (7,831) (4,164) (2,281)
-------- -------- --------
NET INCOME $ 79,954 $ 48,017 $ 25,751
======== ======== ========
Average common shares 11,371 12,426 11,327
Net income per common share $ 7.05 $ 3.88 $ 2.29
======== ======== ========
Cash dividends $ .40 $ .30 $ .20
======== ======== ========
See notes to consolidated financial statements.
-15-
CONSOLIDATED STATEMENTS OF CASH FLOWS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
Year Ended May 31,
- -------------------------------------------------------------------------------
In thousands 1996 1995 1994
- -------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 79,954 $ 48,017 $ 25,751
Loss (gain) on disposal of assets 977 (1,994) (2,535)
Non-cash items
Depreciation, depletion and
amortization 49,280 49,342 48,962
Deferred taxes 6,822 5,434 3,790
Undistributed minority interest 6,771 3,028 1,186
Other - net 6,454 4,798 1,575
Changes in operating assets and
liabilities
Notes and accounts receivable (13,417) (22,608) (937)
Inventories and prepaid expenses (22,921) 10,781 (18,468)
Accounts payable and accrued
liabilities 3,637 17,935 (7,980)
Real estate and investments 9,906 1,131 28
--------- -------- -------
Net cash provided by operations 127,463 115,864 51,372
INVESTING ACTIVITIES
Capital expenditures (79,300) (48,751) (23,305)
Proceeds from disposition of assets 1,799 3,132 2,880
Purchase of temporary investments -- -- (2,017)
Proceeds from temporary investments -- -- 8,374
Cash surrender value - insurance (1,768) (1,759) (821)
Other - net (1,386) 303 (315)
--------- -------- ---------
Net cash used by investing (80,655) (47,075) (15,204)
FINANCING ACTIVITIES
Proceeds of short-term borrowing -- -- 30,000
Repayments of short-term borrowing -- (15,000) (15,000)
Proceeds of long-term borrowing 97,552 50,485 71,517
Debt retirements (126,593) (50,127) (111,738)
Purchase of treasury shares (417) (54,688) (3,595)
Purchase of Chaparral stock (12,506) -- --
Dividends paid (4,451) (3,618) (2,308)
Other - net 1,674 (1,619) (34)
--------- -------- ---------
Net cash used by financing (44,741) (74,567) (31,158)
--------- -------- ---------
Increase (decrease) in cash 2,067 (5,778) 5,010
Cash at beginning of year 25,988 31,766 26,756
--------- -------- ---------
Cash at end of year $ 28,055 $ 25,988 $ 31,766
========= ========= =========
See notes to consolidated financial statements.
-16-
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------------
Common
Stock Additional Treasury Total
Preferred $1 Par Paid-in Retained Common Shareholders'
In thousands Stock Value Capital Earnings Stock Equity
- -------------------------------------------------------------------------------------------------------------------
May 31, 1993 $ 598 $11,100 $220,776 $ 52,933 $ (2,896) $282,511
Net income 25,751 25,751
Cash dividends
Preferred stock - $5 a share (30) (30)
Common stock - $.20 a share (2,278) (2,278)
Common stock issued for
bond conversion -
1,432,296 shares 1,432 44,876 46,308
Common and treasury stock
issued for bonuses
and options - 136,476 shares 2 138 (865) 4,729 4,004
Treasury stock purchased - 94,978
shares (3,595) (3,595)
----- ------- -------- -------- --------- --------
May 31, 1994 598 12,534 265,790 75,511 (1,762) 352,671
Net income 48,017 48,017
Cash dividends
Preferred stock - $5 a share (30) (30)
Common stock - $.30 a share (3,588) (3,588)
Treasury stock issued for
bonuses and options -
20,254 shares 255 (323) 795 727
Treasury stock purchased -
1,498,478 shares (54,688) (54,688)
----- ------- -------- -------- --------- --------
May 31, 1995 598 12,534 266,045 119,587 (55,655) 343,109
Net income 79,954 79,954
Cash dividends
Preferred stock - $4.72 a share (28) (28)
Common stock - $.40 a share (4,423) (4,423)
Treasury stock issued for
bonuses and options - 97,314 shares 288 (1,161) 3,328 2,455
Treasury stock purchased -
7,848 shares (417) (417)
Retirement of preferred stock (598) (30) (628)
----- ------- -------- -------- --------- --------
May 31, 1996 $ -- $12,534 $266,303 $193,929 $ (52,744) $420,022
===== ======= ======== ======== ========= ========
At May 31, 1996, 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.
-17-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Texas Industries, Inc. (the Company or TXI), directly or through subsidiaries,
is a producer of steel and cement/concrete products for the construction and
manufacturing industries. Chaparral Steel Company (Chaparral) produces beam,
merchant and special bar quality rounds, reinforcing bars and channels,
primarily for markets in North America and, under certain market conditions,
Europe and Asia. Cement/concrete operations supply cement and aggregates, ready-
mix, pipe, block and brick from facilities concentrated primarily in Texas and
Louisiana, with several products marketed throughout the U.S.
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, 16.4% at May 31, 1996 and 19.1% at
May 31, 1995.
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.
Cash Equivalents: For cash flow purposes, temporary investments which have
maturities of less than 90 days when purchased are considered cash equivalents.
Earnings per Share: Earnings per share are computed by deducting preferred
dividends from net income and adjusting for amortization of additional goodwill
in connection with the contingent payment for the acquisition of Chaparral, then
dividing this amount by the weighted average number of common shares outstanding
during the period, including common stock equivalents.
Goodwill: Goodwill, currently being amortized on a straight-line basis over a
40-year period, is net of accumulated amortization of $14.2 million at May 31,
1996 and $12.2 million at May 31, 1995. A $9.4 million reduction in goodwill was
recognized as of May 31, 1995 due to the realization of certain tax benefits
arising from the acquisition of Chaparral. Management reviews remaining goodwill
with consideration toward recovery through future operating results
(undiscounted) at the current rate of amortization.
Commissioning Costs: The Company's policy for new facilities is to capitalize
certain costs until the facility is substantially complete and ready for its
intended use. Chaparral began the commissioning of the large beam mill in
February 1991. The mill was substantially complete and ready for its intended
use in the third quarter of fiscal 1992 with a total of $15.1 million of costs
deferred. The annual amount of amortization charged to income was $3 million in
1996, 1995 and 1994, based on a five-year period. Total accumulated amortization
is $13.1 million.
-18-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued
Income Taxes: Accounting for income taxes uses the liability method of
recognizing and classifying deferred income taxes. The Company joins in filing a
consolidated return with its subsidiaries. Current and deferred tax expense is
allocated among the members of the group based on a stand-alone calculation of
the tax of the individual member.
Financial Instruments: The estimated fair value of each class of financial
instrument as of May 31, 1996 approximates carrying value except for Chaparral's
long-term debt. The fair value of long-term debt at May 31, 1996, estimated by
applying discounted cash flow analysis based on interest rates currently
available to the Company for such debt with similar terms and remaining
maturities, is approximately $180.6 million compared to the carrying amount of
$173.7 million.
New Accounting Pronouncements: Effective June 1, 1996, the Company will adopt
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121), that requires recognition of impairment losses on long-lived assets.
Based on estimates as of May 31, 1996, the Company believes its adoption will
not have a material effect on the financial statements of the Company.
The Company has elected to continue utilizing the accounting for stock issued to
directors and employees prescribed by APB No. 25, and therefore, the required
adoption of Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), is expected to have no effect on the
financial position or results of operations of the Company.
WORKING CAPITAL
Working capital totaled $219.3 million at May 31, 1996, compared to $187.6
million at the prior year-end.
Notes and accounts receivable of $113.8 million at May 31, 1996, compared with
$99.4 million in 1995, are presented net of allowances for doubtful receivables
of $3.1 million in 1996 and $3.2 million in 1995.
Inventories are stated at cost (not in excess of market) generally 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 $14.2 million in 1996 and $11.6 million in 1995.
Inventories are summarized as follows:
-----------------------------------------------------------------------
In thousands 1996 1995
-----------------------------------------------------------------------
Finished products $ 64,347 $ 55,874
Work in process 23,345 19,148
Raw materials and supplies 62,834 50,362
-------- --------
$150,526 $125,384
======== ========
-19-
LONG-TERM DEBT
Long-term debt is comprised of the following:
- ------------------------------------------------------------------------
In thousands 1996 1995
- ------------------------------------------------------------------------
Bank obligations, maturing through 2000,
interest rate
6.06% (.625% over LIBOR) $ 9,000 $ 93,000
Senior notes due through 2008,
interest rates average 7.28% 75,000 --
Senior notes of Chaparral, due through 2004,
interest rates average 10.2% 64,000 72,000
First mortgage notes of Chaparral,
due through 2000, interest rate 14.2% 14,320 20,458
First mortgage notes of Chaparral,
due through 1995, interest rate of 9%
(2% over LIBOR) -- 1,248
Pollution control bonds, due through 2007,
interest rate 6.19% (75% of prime) 8,615 10,350
Other, maturing through 2005, interest rates
from 8% to 10% 2,748 5,695
-------- --------
173,683 202,751
Less current maturities 13,474 17,477
-------- --------
$160,209 $185,274
======== ========
Annual maturities of long-term debt for each of the five succeeding years are
$13.5, $13.3, $13.2, $10.9 and $17.8 million.
The Company has available a bank-financed $150 million long-term line of credit.
In addition to the $9 million currently outstanding under this line, $7.7
million has been utilized to support letters of credit. Commitment fees at a
current annual rate of .22% are paid on the unused portion of this line.
In April 1996, the Company concluded the placement of $75 million in fixed-rate
senior notes having an average maturity of ten years and average interest rate
of 7.28%. The proceeds were used to repay bank debt.
Loan agreements contain covenants which provide for minimum working capital,
restrictions on purchases of treasury stock and payment of dividends on common
stock, and limitations on 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,
excluding Chaparral, of earnings before interest, taxes, depreciation and
amortization plus dividends from Chaparral to fixed charges. Chaparral loan
agreements also restrict dividends and advances to its shareholders, including
the parent company, to $41 million as of May 31, 1996. The Company and Chaparral
are in compliance with all loan covenant restrictions.
Property, plant and equipment, principally Chaparral's, carried at a net amount
of approximately $203.5 million at May 31, 1996 is mortgaged as collateral for
$15.6 million of secured debt.
The amount of interest paid was $18.9 million in 1996, $18.4 million in 1995 and
$31.6 million in 1994.
-20-
SHAREHOLDERS' EQUITY
Common stock consists of:
- ------------------------------------------------------------------
In thousands 1996 1995
- ------------------------------------------------------------------
Shares authorized 40,000 15,000
Shares outstanding at May 31 11,100 11,011
Average shares outstanding including equivalents 11,371 12,426
Shares held in treasury 1,434 1,523
Shares reserved for stock options and other 1,211 1,304
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.
There were 5,976 shares of $5 Cumulative Preferred Stock outstanding at May 31,
1995. On March 29, 1996 the Company redeemed and retired all outstanding shares
of such $5 Cumulative Preferred Stock.
An additional 50,000 shares are designated Series A Junior Participating
Preferred Stock, redeemable under certain conditions at a redemption price,
subject to adjustment, equal to 200 times the aggregate amount to be distributed
per share to holders of Common Stock but not less than $100. There are
outstanding rights, issued to common shareholders under the Company's
Shareholders Protection Plan, to purchase 48,484 shares of Series A Junior
Participating Preferred Shares, none of which were outstanding. Under certain
conditions, each right may be exercised to purchase one two-hundredth of a share
for $100. The rights, which are non-voting, expire in August 1996 and may be
redeemed by the Company at a price of five cents per right at any time.
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. Generally, options become
exercisable in installments beginning one or two years after date of grant and
expire six or ten years later depending on the initial date of grant. A summary
of option transactions for the two years ended May 31, 1996, follows:
Shares Under Option Aggregate Option Price
- ---------------------------------------------------------------------
$ In thousands 1996 1995 1996 1995
- ---------------------------------------------------------------------
Outstanding at June 1 548,441 360,004 $13,928 $ 7,783
Granted 187,200 219,500 8,514 7,002
Exercised (96,222) (19,029) (2,126) (432)
Cancelled (23,120) (12,034) (622) (425)
------- ------- ------- -------
Outstanding at May 31 616,299 548,441 $19,694 $13,928
======= ======= ======= =======
At May 31, 1996, there were 164,959 shares exercisable and 519,720 shares
available for future grants. Outstanding options expire on various dates to
January 17, 2006.
-21-
INCOME TAXES
The Company made income tax payments of $38.7 million, $19.7 million and $9.7
million in 1996, 1995 and 1994, respectively. An additional income tax provision
of $1,949,000 was recognized in 1994 due to federal tax legislation enacted on
August 10, 1993 which increased the corporate tax rate to 35%.
The provisions for income taxes are composed of:
- ---------------------------------------------
In thousands 1996 1995 1994
- ---------------------------------------------
Current $40,434 $20,266 $11,766
Deferred 6,822 5,434 3,790
------- ------- -------
Expense $47,256 $25,700 $15,556
======= ======= =======
A reconcilement from statutory federal taxes to the above provisions follows:
- ----------------------------------------------------------------------------------------------
In thousands 1996 1995 1994
- ----------------------------------------------------------------------------------------------
Taxes at statutory rate $47,264 $27,258 $15,256
Change in statutory federal tax rate -- -- 1,949
Tax credit carryforwards -- (333) (36)
Additional depletion (2,707) (2,352) (2,107)
Goodwill 702 809 811
State income tax 1,905 552 242
Non taxable insurance benefits (561) (502) (528)
Other - net 653 268 (31)
------- ------- -------
$47,256 $25,700 $15,556
======= ======= =======
The components of the net deferred tax liability at May 31 are summarized below:
- -----------------------------------------------------------------------------------------------
In thousands 1996 1995
- -----------------------------------------------------------------------------------------------
Deferred tax assets
Deferred compensation $ 4,732 $ 3,711
Expenses not currently tax deductible 9,496 9,929
Tax cost in inventory 3,698 3,437
Net operating loss carryforwards -- 14
Alternative minimum tax credit carryforwards -- 11,713
-------- --------
Total deferred tax assets 17,926 28,804
Deferred tax liabilities
Accelerated tax depreciation 65,481 68,172
Deferred real estate gains 5,672 5,663
Commissioning costs 704 1,760
Other 1,803 2,127
-------- --------
Total deferred tax liabilities 73,660 77,722
-------- --------
Net tax liability 55,734 48,918
Less current portion (asset) (10,175) (20,316)
-------- --------
Net deferred tax liability $ 65,909 $ 69,234
======== ========
-22-
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. Notwithstanding
such compliance, if damage 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 may be held liable for such damages and be required to pay the cost
of investigation and remediation of such contamination. The amount of such
liability could be material. Changes in federal or state laws, regulations or
requirements or discovery of unknown conditions could require additional
expenditures by the Company.
The Company and subsidiaries are defendants in lawsuits which arose in the
normal course of business. In management's judgment (based on the opinion of
counsel) the ultimate liability, if any, from such legal proceedings will not
have a material effect on the consolidated financial position.
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 $2.9 million in 1996, $2.6 million in 1995
and $1.5 million in 1994. It is the Company's policy to fund the plans to the
extent of charges to income.
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 for these plans, included in selling, general and
administrative, was $15.1 million, $8.9 million and $4.1 million for 1996, 1995
and 1994, respectively.
Certain executives of Chaparral participate in a deferred compensation plan
based on a five-year average of earnings. Amounts recorded as expense
(reduction) under the plan were $.7 million, $(.1) million and $(2.0) million
for 1996, 1995 and 1994, respectively.
OPERATING LEASES
Total expense for operating leases for mobile equipment, office space and other
items (other than for mineral rights) amounted to $16.4 million in 1996, $12.0
million in 1995 and $10.0 million in 1994. Non-cancelable operating leases with
an initial or remaining term of more than one year totaled $72.4 million at May
31, 1996. Annual lease payments for the five succeeding years are $15.9 million,
$11.9 million, $8.0 million, $8.5 million and $9.0 million.
BUSINESS SEGMENTS
Business segment information is presented on pages 9 and 10. Intersegment sales,
which are not material, are accounted for at prices comparable to normal trade
customer sales. 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 subsidiaries
and other financial assets not identified with a major business segment.
-23-
QUARTERLY FINANCIAL INFORMATION (Unaudited)
The following is a summary of quarterly financial information (in thousands
except per share):
------------------------------------------------------------
1996 Aug. Nov. Feb. May
------------------------------------------------------------
Net Sales
Steel $138,141 $154,990 $158,954 $155,571
Cement/concrete 93,963 89,271 76,086 100,473
-------- -------- -------- --------
232,104 244,261 235,040 256,044
======== ======== ======== ========
Operating profit
Steel 13,346 19,892 21,173 21,365
Cement/concrete 24,844 21,903 13,685 29,696
-------- -------- -------- --------
38,190 41,795 34,858 51,061
======== ======== ======== ========
Net income 17,131 21,452 16,004 25,367
Per share
Net income 1.53 1.89 1.41 2.22
Dividends .10 .10 .10 .10
Stock price
High 49 3/4 55 1/4 62 1/4 69 1/4
Low 35 5/8 47 1/2 50 1/4 60 1/2
------------------------------------------------------------
1995 Aug. Nov. Feb. May
------------------------------------------------------------
Net sales
Steel $124,382 $126,273 $132,388 $148,768
Cement/concrete 76,585 74,822 66,603 80,705
-------- -------- -------- --------
200,967 201,095 198,991 229,473
======== ======== ======== ========
Operating profit
Steel 6,249 11,005 11,143 15,231
Cement/concrete 18,845 16,502 10,105 23,555
-------- -------- -------- --------
25,094 27,507 21,248 38,786
======== ======== ======== ========
Net income 10,766 12,010 6,876 18,365
Per share
Net income* .85 .96 .55 1.56
Dividends .05 .05 .10 .10
Stock prices
High 36 3/4 38 7/8 35 1/4 39 1/2
Low 31 7/8 30 29 1/2 31
* The sum of these amounts does not equal the annual amount because of
changes in the average number of common equity shares outstanding during
the year.
-24-
FINANCIAL INFORMATION OF REGISTRANT (Unaudited)
The following condensed balance sheets of the Registrant only (solely parent
company) with subsidiaries carried on the equity method as of May 31, 1996 and
1995 and the related statements of income and cash flows for each of the three
years in the period ended May 31, 1996, are furnished to satisfy disclosure
requirements due to the percentage of consolidated net assets which reside in
subsidiary companies and which are subject to third party restrictions.
Balance Sheets
- --------------
May 31,
- -------------------------------------------------------------------------
In thousands 1996 1995
- -------------------------------------------------------------------------
Assets
Current assets
Cash $ 7,603 $ 6,537
Notes and accounts receivable 54,043 44,831
Inventories 24,654 23,241
Prepaid expenses 17,722 27,923
-------- --------
TOTAL CURRENT ASSETS 104,022 102,532
Other assets
Investment in and net advances to
subsidiaries 313,997 267,394
Other 19,244 20,844
-------- --------
333,241 288,238
Property, plant and equipment
Land and land improvements 73,997 72,989
Buildings 26,546 25,842
Machinery and equipment 305,618 275,192
-------- --------
406,161 374,023
Less allowances for depreciation and
depletion 265,839 258,466
-------- --------
140,322 115,557
-------- --------
$577,585 $506,327
======== ========
Liabilities and shareholders' equity
Current liabilities
Trade accounts payable $ 17,502 $ 15,986
Accrued interest, wages and other items 17,793 14,407
Current portion of long-term debt 1,109 1,625
-------- --------
TOTAL CURRENT LIABILITIES 36,404 32,018
Long-term debt 93,512 104,208
Deferred federal income taxes and other
credits 27,647 26,992
Shareholders' equity
Preferred stock -- 598
Common stock, $1 par value 12,534 12,534
Additional paid-in capital 266,303 266,045
Retained earnings 193,929 119,587
Cost of common shares in treasury (52,744) (55,655)
-------- --------
420,022 343,109
-------- --------
$577,585 $506,327
======== ========
-25-
FINANCIAL INFORMATION OF REGISTRANT-Continued
Statements of Income
- --------------------
Year Ended May 31,
- --------------------------------------------------------------------------------
In thousands 1996 1995 1994
- --------------------------------------------------------------------------------
Net sales $347,511 $290,592 $248,325
Costs and expenses (income)
Cost of products sold 245,037 209,622 198,163
Selling, general and administrative 38,802 34,264 26,569
Interest 10,476 8,192 12,980
Other income (7,168) (7,538) (8,613)
-------- -------- --------
287,147 244,540 229,099
-------- -------- --------
Income before the following items 60,364 46,052 19,226
Income taxes
Expense 20,237 13,566 3,872
Change in statutory federal tax rate -- -- 268
-------- -------- --------
20,237 13,566 4,140
-------- -------- --------
Income from operations 40,127 32,486 15,086
Equity in earnings of subsidiaries
Income from continuing operations
of subsidiaries 39,827 15,531 10,665
-------- -------- --------
NET INCOME $ 79,954 $ 48,017 $ 25,751
======== ======== ========
Statements of Cash Flows
- ------------------------
Year ended May 31,
- --------------------------------------------------------------------------------
In thousands 1996 1995 1994
- --------------------------------------------------------------------------------
Net cash provided by operations $ 71,770 $ 48,606 $ 39,178
Investing activities
Capital expenditures (57,357) (30,154) (14,814)
Proceeds from disposition of assets 1,418 1,899 2,454
Purchase of investments -- -- (2,017)
Proceeds from investments -- -- 8,374
Cash surrender value-insurance (1,595) (1,515) (820)
Other - net 3,895 (747) (7,417)
-------- -------- --------
Net cash used by investing (53,639) (30,517) (14,240)
Financing activities
Proceeds of long-term borrowing 97,500 49,500 71,257
Debt retirements (108,686) (29,324) (73,505)
Purchase of treasury shares (417) (54,688) (3,595)
Dividends paid (4,451) (3,618) (2,308)
Other - net (1,011) (1,619) (34)
-------- -------- --------
Net cash used by financing (17,065) (39,749) (8,185)
-------- -------- --------
Increase (decrease) in cash 1,066 (21,660) 16,753
Cash at beginning of year 6,537 28,197 11,444
-------- -------- --------
Cash at end of year $ 7,603 $ 6,537 $ 28,197
======== ======== ========
-26-
FINANCIAL INFORMATION OF REGISTRANT-Continued
Notes to Financial Information of Registrant
- --------------------------------------------
Long-term Debt
Annual maturities of long-term debt for each of the five succeeding years are
$1.1, $1.0, $.9, $.9, and $9.8 million. Long-term debt is comprised of the
following:
- -------------------------------------------------------------------------------
In thousands 1996 1995
- -------------------------------------------------------------------------------
Bank obligations, maturing through 2000, interest rate
6.06% (.625% over LIBOR) $ 9,000 $ 93,000
Senior notes due through 2008, interest rates
average 7.28% 75,000 --
Pollution control bonds, due through 2007, interest rate
6.19% (75% of prime) 8,615 10,350
Other, interest rates from 8% to 10% 2,006 2,483
------- --------
94,621 105,833
Less current maturities 1,109 1,625
------- --------
$93,512 $104,208
======= ========
The Company has available a bank-financed $150 million long-term line of credit.
In addition to the $9 million currently outstanding under this line, $7.7
million has been utilized to support letters of credit. Commitment fees at a
current annual rate of .22% are paid on the unused portion of this line.
In April 1996, the Company concluded the placement of $75 million in fixed-rate
senior notes having an average maturity of ten years and average interest rate
of 7.28%. The proceeds were used to repay bank debt.
Dividends from Subsidiaries
The Company received cash dividends from subsidiaries of $4.8 million in 1996,
$4.8 million in 1995, and $6.4 million in 1994.
Restricted Transfer of Assets from Subsidiaries
Chaparral has loan covenants that restrict the transfer of assets by loans,
advances or dividends to the parent. These covenants require that Chaparral
maintain minimum levels of working capital, restrict loans and the percentage of
net income that can be distributed as dividends. The restricted net assets were
$212.3 million and the restricted retained earnings were $71.8 million at May
31, 1996. The retained earnings of subsidiaries included in the consolidated
retained earnings at May 31, 1996, were $66.6 million.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
-----------------------------------------------------
None
-27-
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, 1996, a definitive
proxy statement pursuant to Regulation 14A involving the election of Directors.
Reference is made to the sections of such proxy statement entitled "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, 1996 and 1995
Consolidated Statements of Income - Years ended May 31, 1996, 1995
and 1994
Consolidated Statements of Cash Flows - Years ended May 31, 1996,
1995 and 1994
Consolidated Statements of Shareholders' Equity - Years ended May 31,
1996, 1995 and 1994
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
3. (i) Articles of Incorporation
(ii) By-laws (previously filed and incorporated by reference)
4. Instruments defining rights of security holders (previously filed
and incorporated 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.
11. Statement re: computation of per share earnings
21. Subsidiaries of the Registrant
23. Consent of Independent Auditors
24. Power of Attorney for certain members of the Board of Directors
27. Financial Data Schedule (electronically filed only)
This schedule contains summary financial information extracted from the
Registrant's May 31, 1996 Consolidated Financial Statements and is qualified in
its entirety by reference to such financial statements.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended May 31, 1996.
-28-
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 26th day of August, 1996.
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 26, 1996
- ----------------------------- (Principal Executive Officer)
Robert D. Rogers
/s/ Richard M. Fowler Vice President - Finance and August 26, 1996
- ----------------------------- Chief Financial Officer
Richard M. Fowler (Principal Financial Officer)
/s/ James R. McCraw Vice President - Controller August 26, 1996
- ----------------------------- (Principal Accounting Officer)
James R. McCraw
Director August 26, 1996
- -----------------------------
Robert Alpert
/s/ Gordon E. Forward* Director August 26, 1996
- -----------------------------
Gordon E. Forward
/s/ Richard I. Galland* Director August 26, 1996
- -----------------------------
Richard I. Galland
/s/ Gerald R. Heffernan* Director August 26, 1996
- -----------------------------
Gerald R. Heffernan
Director August 26, 1996
- -----------------------------
James M. Hoak
/s/ Ralph B. Rogers* Director August 26, 1996
- -----------------------------
Ralph B. Rogers
/s/ Robert D. Rogers Director August 26, 1996
- -----------------------------
Robert D. Rogers
/s/ Ian Wachtmeister* Director August 26, 1996
- -----------------------------
Ian Wachtmeister
/s/ Elizabeth C. Williams* Director August 26, 1996
- -----------------------------
Elizabeth C. Williams
* BY /s/ James R. McCraw Vice President - Controller August 26, 1996
-----------------------
James R. McCraw
-29-
INDEX TO EXHIBITS
Exhibits Page
3.1 Articles of Incorporation............................................31
3.2 By-Laws.............................................................. *
4 Instruments defining rights of security holders...................... *
11.1 Statement re: computation of per share earnings.....................40
21.1 Subsidiaries of the Registrant.......................................41
23.1 Consent of Independent Auditors......................................42
24.1 Power of Attorney for certain members of the Board of Directors......43
27 Financial Data Schedule..............................................**
* Previously filed and incorporated herein by reference.
** Electronically filed only.
-30-