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, 1997
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. [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, 1997 was $536,275,278.
As of July 11, 1997, 20,902,375 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 21, 1997, 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.......... 28
PART III
Item 10. Directors and Executive Officers of the Registrant............ 29
Item 11. Executive Compensation........................................ 29
Item 12. Security Ownership of Certain Beneficial
Owners and Management..................................... 29
Item 13. Certain Relationships and Related Transactions................ 29
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K............................................... 29
PART I
ITEM 1. BUSINESS
--------
(a) General Development of Business
Texas Industries, Inc. (the "Registrant", "Company" or "TXI"), incorporated
April 19, 1951, through subsidiaries, is a producer of steel and cement/concrete
products for the construction and manufacturing industries. Chaparral Steel
Company ("Chaparral"), an 84.5 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
up to twenty-four inches wide, merchant quality rounds, special bar quality
rounds, rebar and channels.
The rated annual capacity of the 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 1.6 million tons of finished
products in both 1997 and 1996, and 1.4 million tons in 1995.
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 28 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 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 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. At present, Chaparral has approximately 800
customers with one customer accounting for 12% of Chaparral's sales in 1997.
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 800,000 100
The cement plants produced approximately 2.1 million tons of finished cement in
1997, 2.2 million tons in 1996 and 2.1 million tons in 1995. Total annual
shipments of finished cement were approximately 2.1 million tons in 1997, 2.4
million tons in 1996 and 2.2 million tons in 1995 of which 1.3 million tons in
1997 and 1.5 million tons in both 1996 and 1995 were shipped to outside trade
customers.
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 the Dallas/Fort Worth, Austin and Houston areas in Texas, and the
Alexandria, New Orleans, Baton Rouge, and Monroe areas in Louisiana. 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 6.5 million tons 33
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 7.4 million tons 24
Central Texas Sand & Gravel 2 2.4 million tons 13
South Central
Oklahoma Sand & Gravel 1 1.2 million tons 6
Reserves identified with the facilities shown above and additional reserves
available to support future plant sites are contained on 34,714 acres of land,
18,611 acres of which are owned in fee by the Registrant and the remainder of
which are leased. The expanded shale and clay plants operated at 73 percent of
capacity for 1997 with sales of approximately 1.1 million cubic yards.
Production for the remaining aggregate facilities was 67 percent of practical
capacity and sales for the year totaled 13.2 million tons, of which
approximately 9.3 million tons were shipped to outside trade customers. In
addition, the Registrant owns and operates three industrial sand plants.
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), in northwest,
northeast 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 27 335
Louisiana 18 107
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
Central Louisiana Concrete block and pipe
Northeast 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 3,400 persons, of whom 1,300
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 61 President and Chief Executive
Officer and Director
Barry M. Bone 39 Vice President - Real Estate (since
1995); Director of Corporate
Real Estate (1992 to 1995)
President, Brookhollow Corporation
Melvin G. Brekhus 48 Vice President - Cement (since 1995);
Vice President - Cement Production
(1992 to 1995)
Brooke E. Brewer 55 Vice President - Human Resources
Roman J. Figueroa 51 Vice President - Aggregates
Carlos E. Fonts 57 Vice President - Corporate
Development (since 1996); Manager
Latin America, Alex Brown & Sons
(1995); Fonts & Associates (1992 to
1995)
Richard M. Fowler 54 Vice President - Finance and Chief
Financial Officer
James R. McCraw 53 Vice President - Controller
Robert C. Moore 63 Vice President - General Counsel
and Secretary
Tommy A. Valenta 48 Vice President - Concrete (since
1995); Vice President - North Texas
Concrete/Cement Marketing (1992 to
1995)
Kenneth R. Allen 39 Vice President (since 1996) and
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, 1997, the approximate
number of shareholders of common stock of the Registrant was 3,796. 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 19 and 20 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 1997 1996 1995 1994 1993
----------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Net sales $973,824 $967,449 $830,526 $707,147 $614,292
Operating profit 154,535 165,904 112,635 82,130 44,572
Net income 75,474 79,954 48,017 25,751 1,058
Return on average common equity 17.3% 21.0% 13.8% 8.1% .4%
PER SHARE INFORMATION
Net income (primary) $ 3.40 $ 3.52 $ 1.94 $ 1.15 $ .06
Cash dividends .25 .20 .15 .10 .10
Book value 20.36 18.47 13.81 15.57 12.74
FOR THE YEAR
Cash from operations $109,899 $127,463 $115,864 $ 51,372 $ 49,361
Capital expenditures 85,188 79,300 48,751 23,305 17,212
YEAR END POSITION
Total assets $847,923 $801,063 $753,055 $749,120 $757,300
Net working capital 242,994 219,345 187,603 161,383 159,408
Long-term debt 176,056 160,209 185,274 171,263 267,243
Shareholders' equity 452,811 420,022 343,109 352,671 282,511
Long-term debt to total
capitalization 28.0% 27.6% 35.1% 32.7% 48.6%
OTHER INFORMATION
Average common shares
outstanding (in 000's) 22,243 22,742 24,851 22,654 22,169
Number of common stockholders 3,796 4,017 4,445 4,647 5,061
Number of employees 3,400 3,000 2,800 2,700 2,700
Wages, salaries and employee
benefits $145,953 $141,233 $114,366 $102,853 $ 96,891
Common stock prices
(high-low) 34 - 20 34 - 17 19 - 14 19 - 10 14 - 9
-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.
In April 1997, plans to construct a new structural mill in the eastern United
States were announced. With production scheduled to begin in 1999, the new
mill's annual capacity is expected to exceed one million tons and produce a full
range of structural beams (up to 36 inches in depth) and sheet pile sections.
The mill will be positioned to replace the decrease in production caused by the
reduction in domestic suppliers experienced over the last few years. Patented
technologies and existing material recycling expertise will be incorporated in
the new facility.
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 1997 net sales increased $6.4 million over 1996 to $973.8 million.
Steel sales were $616.7 million, up $9 million from the previous year.
Shipments increased 30,000 tons to a record level of 1,620,000 tons with average
selling prices declining slightly. The demand for structural products from
domestic sources remained strong as prices for structural mill products were
comparable to 1996. Bar product shipments were 16% higher than the previous
year with somewhat lower average selling prices. Special Bar Quality shipments
increased 6%. Export sales were level at 4% of total shipments because of the
continued strong domestic market. Chaparral uses its ability to adjust its
product mix to maximize profit margins.
Cement/concrete sales, at $357.1 million were below sales of the prior year as a
result of lower volumes. Unusually wet weather impacted construction activity
in Texas and Louisiana during much of the year. Cement average trade pricing
was up 10% over 1996 with shipments down 12%. Ready-mix net sales reflect 6%
higher pricing on 9% lower volumes. Overall aggregate prices increased slightly
from 1996 with volumes somewhat lower. Sales of other products reflect the 1996
acquisition of expanded shale and clay aggregate facilities in California.
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.
-8-
NET SALES-Continued
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.
BUSINESS SEGMENTS
Year ended May 31,
----------------------------------------------------------------------------
In thousands 1997 1996 1995
----------------------------------------------------------------------------
NET SALES
Bar mill $178,227 $157,130 $167,962
Structural mills 435,242 447,115 359,845
Transportation service 3,207 3,411 4,004
-------- -------- --------
TOTAL STEEL 616,676 607,656 531,811
Cement 133,256 137,773 115,531
Ready-mix 148,861 154,105 114,568
Stone, sand & gravel 76,070 78,198 64,285
Other products 79,783 70,690 58,615
Interplant (80,822) (80,973) (54,284)
-------- -------- --------
TOTAL CEMENT/CONCRETE 357,148 359,793 298,715
-------- -------- --------
TOTAL NET SALES $973,824 $967,449 $830,526
======== ======== ========
UNITS SHIPPED
Bar mill (tons) 525 453 475
Structural mills (tons) 1,095 1,137 1,036
-------- -------- --------
TOTAL STEEL TONS 1,620 1,590 1,511
Cement (tons) 2,082 2,363 2,226
Ready-mix (cubic yards) 2,813 3,088 2,415
Stone, sand & gravel (tons) 15,501 15,706 12,375
STEEL OPERATIONS
Gross profit $132,309 $130,050 $ 94,761
Less: Depreciation & amortization 33,153 32,493 33,887
Selling, general & administrative 29,197 26,099 20,362
Other income (1,528) (4,318) (3,116)
-------- -------- --------
OPERATING PROFIT 71,487 75,776 43,628
CEMENT/CONCRETE OPERATIONS
Gross profit 125,942 128,246 101,678
Less: Depreciation, depletion &
amortization 19,918 15,964 14,669
Selling, general & administrative 25,616 23,867 20,806
Other income (2,640) (1,713) (2,804)
-------- -------- --------
OPERATING PROFIT 83,048 90,128 69,007
-------- -------- --------
TOTAL OPERATING PROFIT $154,535 $165,904 $ 112,635
-9-
BUSINESS SEGMENTS--Continued
Year ended May 31,
---------------------------------------------------------------------------------
In thousands 1997 1996 1995
---------------------------------------------------------------------------------
CORPORATE RESOURCES
Other income $ 7,680 $ 7,088 $ 1,651
Less: Depreciation & amortization 838 823 786
Selling, general & administrative 19,270 17,168 15,502
-------- -------- --------
(12,428) (10,903) (14,637)
INTEREST EXPENSE (18,885) (19,960) (20,117)
-------- -------- --------
INCOME BEFORE TAXES &
OTHER ITEMS $123,222 $135,041 $ 77,881
======== ======== ========
CAPITAL EXPENDITURES
Steel $ 33,776 $ 20,630 $ 16,234
Cement/concrete 49,327 57,628 27,781
Corporate 2,085 1,042 4,736
-------- -------- --------
$ 85,188 $ 79,300 $ 48,751
======== ======== ========
IDENTIFIABLE ASSETS
Steel $494,210 $475,337 $469,827
Cement/concrete 274,880 243,081 189,096
Corporate 78,833 82,645 94,132
-------- -------- --------
$847,923 $801,063 $753,055
======== ======== ========
See notes to consolidated financial statements.
COST OF PRODUCTS SOLD
Consolidated cost of products sold including depreciation, depletion and
amortization, was $767.0 million in 1997, a $10.3 million increase over 1996.
Steel cost of sales of $517.4 million increased $7.4 million due primarily to
the 30,000 ton increase in shipments as per ton costs were slightly lower than
1996. While scrap costs were comparable to the prior year, combined rolling
costs decreased. Cement/concrete costs of $249.6 million were up $2.9 million
in 1997 as higher unit manufacturing cost of cement and ready-mix distribution
costs offset the effect of lower cement volumes.
The 1996 cost of products sold was $756.7 million, 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.
-10-
OPERATING PROFIT
Operating profit of $154.5 million decreased 7% from the record levels of 1996.
Steel profits were $4.3 million lower as improved margins from increased volumes
were offset by higher selling, general and administrative expenses and reduction
in other income. Cement/concrete profits were $7.1 million below 1996 levels
primarily due to reduced shipments caused by the unusually wet weather
experienced during the year.
Record operating profit in 1996 of $165.9 million represented 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.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES AND OTHER INCOME
Selling, general and administrative expense including depreciation and
amortization increased $7.7 million to $76.5 million in 1997. Steel costs at
$29.3 million increased $3.1 million primarily due to higher provisions for
employee incentive programs. Cement/concrete at $27.1 million increased $2.5
million and corporate resources at $20.1 million increased $2.1 million as
increases due to expanded operations were offset by reduced employee incentive
expense.
Total 1996 SG&A including both operations and corporate resources increased
$10.6 million to $68.9 million, principally due to higher provisions for
employee incentive and profit sharing expense.
Combined other income of $11.8 million in 1997 decreased $1.3 million from the
prior year. Corporate resources other income included $6.3 million generated by
the Company's real estate operations during 1997 compared with $6.1 million in
1996.
INTEREST EXPENSE
Interest expense at $18.9 million in 1997 was $1.1 million lower than 1996 due
to a reduction in the average outstanding debt.
FINANCIAL CONDITION
Net income at $75.5 million was $4.5 million below the record level of the
previous year as unusually wet weather in the Texas region reduced shipments
despite strong underlying demand. Cash provided by operations of $109.9 million
funded $85.2 million in capital expenditures. Long-term borrowings exceeded
repayments by $15.8 million as the Company repurchased $41.6 million of its
Common Stock. Shareholders' equity increased $32.8 million to $452.8 million.
The long-term debt to total capitalization ratio of 28% at May 31, 1997 was
comparable to that at the prior year-end.
Working capital grew $23.7 million to $243.0 million. Notes and accounts
receivable increased to $122.8 million as record steel shipments in the month of
May 1997 offset reduced cement/concrete receivables. Total inventories
increased $16.6 million in 1997. Chaparral's inventories increased $9.2 million
on record production while 1996 inventories increased by $20.4 million due to
higher raw material costs. These changes in inventory levels increased cash
provided by operations by $11.2 million from 1996 to 1997. Property sales from
the Company's real estate operations in 1997 provided $11.9 million in operating
cash including $2.6 million reduction in short-term notes receivable compared to
$5.3 million net of $6.9 million in additional short-term notes receivable in
1996.
Capital expenditures totaled $85.2 million in 1997, $33.8 million in Chaparral
and $51.4 million in TXI. The increased expenditures reflect expansion
projects, as well as, normal replacement and technological upgrade of existing
equipment. Capital budget plans for 1998 are estimated to reach $120 million as
the Company continues to expand and upgrade its current operations. In April
1997, Chaparral announced plans to construct a new structural mill in the
eastern United States with production scheduled to begin in 1999. Expenditures
of $50 million are anticipated in fiscal 1998 with a total capital commitment of
$450 million over the next five years.
-11-
FINANCIAL CONDITION--Continued
Financing activities used $34.5 million cash in 1997, a decline of $10.3 million
from 1996. Long-term debt increased $15.8 million in 1997 compared to a
reduction of $25 million in 1996. The Company purchased $41.6 million of its
Common Stock pursuant to a decision announced in October 1996 authorizing the
repurchase of shares for general corporate purposes. Chaparral purchased an
additional $3.8 million of its common stock in 1997 having purchased $12.5
million in 1996. In January 1997, TXI declared a two-for-one stock split and
50% increase in the quarterly cash dividend rate resulting in a 20% increase in
cash dividends paid in 1997 over 1996.
At May 31, 1997, $40 million was outstanding and an additional $8.9 million
utilized to support letters of credit under the Company's $100 million long-term
bank line of credit. The credit line expires in September 2001. In addition
Chaparral has a short-term bank credit facility totaling $10 million which will
expire in December 1997 if not renewed. No borrowings were made during 1997
under the agreement.
On May 22, 1997 the Company made an offer to merge with Chaparral Steel Company.
Under the terms of the offer, owners of the approximately 4.4 million publicly
traded shares of Chaparral would receive consideration of $14.25 per share. It
is anticipated that the cost of the merger, should it occur, would be funded out
of new long-term borrowings.
The Company, in keeping with its policy of generally financing major capital
expansion projects with long-term borrowing, is currently in the early stages of
negotiating with various financial institutions regarding funding of Chaparral's
new structural mill and is confident that it will be successful in obtaining all
funds necessary to complete the project. Working capital, investments and
replacement assets are funded out of cash flow from operations. The Company
expects current financial resources and cash from 1998 operations to be
sufficient to provide funds for planned capital expenditures, scheduled debt
payments and other known working capital needs for fiscal 1998. 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, 1997 and 1996....................... 14
Consolidated Statements of Income - Years ended May
31, 1997, 1996 and 1995................................................ 15
Consolidated Statements of Cash Flows - Years ended
May 31, 1997, 1996 and 1995............................................ 16
Consolidated Statements of Shareholders' Equity -
Years ended May 31, 1997, 1996 and 1995................................ 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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended May 31, 1997, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
July 8, 1997
-13-
CONSOLIDATED BALANCE SHEETS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
May 31,
- ----------------------------------------------------------------------
In thousands 1997 1996
- ----------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 19,834 $ 28,055
Notes and accounts receivable 122,783 113,762
Inventories 167,146 150,526
Prepaid expenses 34,613 32,574
-------- --------
TOTAL CURRENT ASSETS 344,376 324,917
OTHER ASSETS
Real estate and other investments 14,920 19,751
Goodwill and other intangibles 63,297 60,377
Other 26,553 20,713
-------- --------
104,770 100,841
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 118,248 110,836
Buildings 66,156 60,610
Machinery and equipment 815,019 766,434
-------- --------
999,423 937,880
Less allowances for depreciation 600,646 562,575
-------- --------
398,777 375,305
-------- --------
$847,923 $801,063
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 51,021 $ 56,652
Accrued interest, wages and other items 36,909 35,446
Current portion of long-term debt 13,452 13,474
-------- --------
TOTAL CURRENT LIABILITIES 101,382 105,572
LONG-TERM DEBT 176,056 160,209
DEFERRED FEDERAL INCOME TAXES AND OTHER
CREDITS 80,080 80,139
MINORITY INTEREST 37,594 35,121
SHAREHOLDERS' EQUITY
Common stock, $1 par value 25,067 12,534
Additional paid-in capital 255,149 266,303
Retained earnings 262,774 193,929
Cost of common shares in treasury (90,179) (52,744)
-------- --------
452,811 420,022
-------- --------
$847,923 $801,063
======== ========
See notes to consolidated financial statements.
-14-
CONSOLIDATED STATMENTS OF INCOME
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
Year Ended May 31,
- ------------------------------------------------------------------------
In thousands except per share 1997 1996 1995
- ------------------------------------------------------------------------
NET SALES $973,824 $967,449 $830,526
COSTS AND EXPENSES (INCOME)
Cost of products sold 767,030 756,715 681,824
Selling, general and administrative 76,535 68,852 58,275
Interest 18,885 19,960 20,117
Other income (11,848) (13,119) (7,571)
-------- -------- --------
850,602 832,408 752,645
-------- -------- --------
INCOME BEFORE THE FOLLOWING ITEMS 123,222 135,041 77,881
Income taxes 41,189 47,256 25,700
-------- -------- --------
82,033 87,785 52,181
Minority interest in Chaparral (6,559) (7,831) (4,164)
-------- -------- --------
NET INCOME $ 75,474 $ 79,954 $ 48,017
======== ======== ========
Average common shares 22,243 22,742 24,851
Net income per common share $ 3.40 $ 3.52 $ 1.94
======== ======== ========
Cash dividends $ .25 $ .20 $ .15
======== ======== ========
See notes to consolidated financial statements.
-15-
CONSOLIDATED STATEMENTS OF CASH FLOWS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
Year Ended May 31,
- --------------------------------------------------------------------------------
In thousands 1997 1996 1995
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 75,474 $ 79,954 $ 48,017
Loss (gain) on disposal of assets 2,131 977 (1,994)
Non-cash items
Depreciation, depletion and amortization 53,909 49,280 49,342
Deferred taxes 683 6,822 5,434
Undistributed minority interest 5,684 6,771 3,028
Other - net 6,367 6,454 4,798
Changes in operating assets and liabilities
Notes and accounts receivable (12,570) (13,417) (22,608)
Inventories and prepaid expenses (22,607) (22,921) 10,781
Accounts payable and accrued liabilities (3,552) 3,637 17,935
Real estate and investments 4,380 9,906 1,131
--------- --------- --------
Net cash provided by operations 109,899 127,463 115,864
INVESTING ACTIVITIES
Capital expenditures (85,188) (79,300) (48,751)
Proceeds from disposition of assets 5,281 1,799 3,132
Other - net (3,733) (3,154) (1,456)
--------- --------- --------
Net cash used by investing (83,640) (80,655) (47,075)
FINANCING ACTIVITIES
Repayments of short-term borrowing -- -- (15,000)
Proceeds of long-term borrowing 69,206 97,552 50,485
Debt retirements (53,392) (126,593) (50,127)
Purchase of treasury shares (41,572) (417) (54,688)
Purchase of Chaparral stock (3,770) (12,506) --
Dividends paid (5,361) (4,451) (3,618)
Other - net 409 1,674 (1,619)
--------- --------- --------
Net cash used by financing (34,480) (44,741) (74,567)
--------- --------- --------
Increase (decrease) in cash (8,221) 2,067 (5,778)
Cash at beginning of year 28,055 25,988 31,766
--------- --------- --------
Cash at end of year $ 19,834 $ 28,055 $ 25,988
========= ========= ========
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, 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 - $.15 a share (3,588) (3,588)
Treasury stock issued for bonuses and
options - 40,508 shares 255 (323) 795 727
Treasury stock purchased - 2,996,956
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 (28) (28)
Preferred stock - $4.72 a share
Common stock - $.20 a share (4,423) (4,423)
Treasury stock issued for bonuses and
options - 194,628 shares 288 (1,161) 3,328 2,455
Treasury stock purchased - 15,696
shares (417) (417)
Retirement of preferred stock (598) (30) (628)
------ ------- -------- -------- -------- --------
May 31, 1996 -- 12,534 266,303 193,929 (52,744) 420,022
Net income 75,474 75,474
Cash dividends
Common stock - $.25 a share (5,361) (5,361)
Shares issued under two-for-one stock
split 12,533 (12,533) --
Treasury stock issued for bonuses and
options - 262,497 shares 1,379 (1,268) 4,137 4,248
Treasury stock purchased - 1,566,554
shares (41,572) (41,572)
------ ------- -------- -------- -------- --------
May 31, 1997 $ -- $25,067 $255,149 $262,774 $(90,179) $452,811
====== ======= ======== ======== ======== ========
At May 31, 1997, 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), through its 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, 15.5% at May 31, 1997 and 16.4% at
May 31, 1996.
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. Earnings per share and
all other common share information have been adjusted to give effect to the two-
for-one stock split in February 1997.
Statement of Financial Accounting Standards No. 128 "Earnings per Share" (SFAS
128), which is not effective until December 15, 1997, will change the method
currently used to compute earnings per share and require the restatement of all
prior periods. The impact is expected to result in an increase in basic earnings
per share over primary earnings per share of $.08, $.09 and $.02, for the fiscal
years ended 1997, 1996 and 1995, respectively.
INTANGIBLE ASSETS: Goodwill and other intangibles is presented net of
accumulated amortization of $17.9 million at May 31, 1997 and $15.0 million at
May 31, 1996. Goodwill resulting from the acquisition of Chaparral of $57.2
million at May 31, 1997 and $59.2 million at May 31, 1996 (net of accumulated
amortization), is being amortized currently on a straight-line basis over a 40-
year period. 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.
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 substantially completed its large beam mill during the
third quarter of fiscal 1992. Deferred costs totaling $15.1 million were
amortized over a five-year period. The annual amount of amortization charged to
income was $2.0 million in 1997 and $3.0 million in 1996 and 1995.
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.
-18-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued
FINANCIAL INSTRUMENTS: The estimated fair value of each class of financial
instrument as of May 31, 1997 approximates carrying value except for Chaparral's
long-term debt. The fair value of long-term debt at May 31, 1997, 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 $198.2 million compared to the carrying amount of
$189.5 million.
Certain amounts in the 1995 and 1996 financial statements have been reclassified
to conform to the 1997 presentation.
WORKING CAPITAL
Working capital totaled $243.0 million at May 31, 1997, compared to $219.3
million at the prior year-end.
Notes and accounts receivable of $122.8 million at May 31, 1997, compared with
$113.8 million in 1996, are presented net of allowances for doubtful receivables
of $2.5 million in 1997 and $3.1 million in 1996.
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 $11.7 million in 1997 and $14.2 million in 1996.
Inventories are summarized as follows:
------------------------------------------------------------
In thousands 1997 1996
------------------------------------------------------------
Finished products $ 77,021 $ 64,347
Work in process 27,162 23,345
Raw materials and supplies 62,963 62,834
-------- --------
$167,146 $150,526
======== ========
LONG-TERM DEBT
Long-term debt is comprised of the following:
-----------------------------------------------------------------
In thousands 1997 1996
-----------------------------------------------------------------
Bank obligations, maturing through
2001, interest rates from 6.31%
to 6.38% (.625% over LIBOR) $ 40,000 $ 9,000
Senior notes due through 2008,
interest rates average 7.28% 75,000 75,000
Senior notes of Chaparral, due
through 2004, interest rates
average 10.2% 56,000 64,000
First mortgage notes of Chaparral,
due through 1999, interest
rate 14.2% 8,182 14,320
Pollution control bonds, due
through 2007, interest rate
6.38% (75% of prime) 7,935 8,615
Other, maturing through 2005,
interest rates from 8% to 10% 2,391 2,748
-------- --------
189,508 173,683
Less current maturities 13,452 13,474
-------- --------
$176,056 $160,209
======== ========
Annual maturities of long-term debt for each of the five succeeding years are
$13.5, $13.3, $9.0, $8.9 and $48.7 million.
-19-
LONG TERM DEBT-Continued
The Company has available a bank-financed $100 million long-term line of credit.
In addition to the $40 million currently outstanding under this line, $8.9
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
addition, Chaparral has available a bank-financed $10 million short-term line of
credit which will expire December 31, 1997, if not renewed. The interest
chargeable on borrowings under this line is .375% over LIBOR. Commitment fees
at an annual rate of .125% are paid on the unused portion of this line.
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. In addition,
Chaparral loan agreements restrict dividends and advances to its shareholders,
including the parent company, to $52 million as of May 31, 1997. 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 $215.4 million at May 31, 1997 is mortgaged as collateral for
$9.4 million of secured debt.
The amount of interest paid was $19.3 million in 1997, $18.9 million in 1996 and
$18.4 million in 1995. Interest capitalized totalled $190,000 in 1997.
SHAREHOLDERS' EQUITY
Common stock consists of:
------------------------------------------------------------------
In thousands 1997 1996
------------------------------------------------------------------
Shares authorized 40,000 40,000
Shares outstanding at May 31 20,896 22,200
Average shares outstanding including equivalents 22,243 22,742
Shares held in treasury 4,171 2,867
Shares reserved for stock options and other 2,163 2,422
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 per one two-
thousandth share of Series B Preferred Stock, 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.
-20-
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. The
Company has elected to continue utilizing the accounting prescribed by APB No.
25 for stock issued under these plans and therefore no compensation cost has
been recognized. If compensation cost had been determined based on the fair
value at the date of grant consistent with the method prescribed by Statement of
Financial Accounting Standard 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 1997 1996
---------------------------------------------
Net income
As reported 75,474 79,954
Pro forma 74,272 79,548
Primary earnings per share
As reported 3.40 3.52
Pro forma 3.36 3.51
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 fair value of each option grant is estimated on the date of grant for
purposes of the pro forma disclosures using the Black-Scholes option-pricing
model with the following weighted average assumptions used for grants made in
1997 and 1996, respectively: dividend yield of 1.05% and .89%, expected
volatility of 24% and 24%; risk-free interest rates of 6.38% and 6.15% and
expected lives of 6.4 and 6.4 years.
A summary of option transactions for the two years ended May 31, 1997 follows:
Weighted Average
Shares Under Option Option Price
---------------------------------------------------------------------------
1997 1996 1997 1996
---------------------------------------------------------------------------
Outstanding at June 1 1,232,598 1,096,882 $15.98 $12.70
Granted 809,200 374,400 26.96 22.74
Exercised (234,067) (192,444) 10.35 11.05
Cancelled (10,600) (46,240) 22.66 13.45
--------- --------- ------ ------
Outstanding at May 31 1,797,131 1,232,598 $21.62 $15.98
Options exerciseable at May 31 347,491 329,918 $15.18 $11.04
Weighted-average fair value of
options granted during the
year $ 9.46 $ 7.98
As of May 31, 1997, the 1.8 million option shares outstanding have an exercise
price between $10.19 and $32.54 and a weighted-average remaining life of 8.0
years. In addition, 240,440 shares were available for future grants.
-21-
INCOME TAXES
The Company made income tax payments of $39.5 million, $38.7 million, and $19.7
million in 1997, 1996 and 1995, respectively.
The provisions for income taxes are composed of:
-----------------------------------------
In thousands 1997 1996 1995
-----------------------------------------
Current $40,506 $40,434 $20,266
Deferred 683 6,822 5,434
------- ------- -------
Expense $41,189 $47,256 $25,700
======= ======= =======
A reconcilement from statutory federal taxes to the above provisions follows:
------------------------------------------------------------------------------
In thousands 1997 1996 1995
------------------------------------------------------------------------------
Taxes at statutory rate $43,127 $47,267 $ 27,258
Tax credit carryforwards -- -- (333)
Additional depletion (2,984) (2,707) (2,352)
Goodwill 702 702 809
State income tax 912 1,905 552
Non taxable insurance benefits (664) (561) (502)
Other - net 96 653 268
------- ------- --------
$41,189 $47,256 $25,700
======= ======= =======
The components of the net deferred tax liability at May 31 are summarized below:
----------------------------------------------------------------
In thousands 1997 1996
----------------------------------------------------------------
Deferred tax assets
Deferred compensation $ 5,523 $ 4,732
Expenses not currently tax deductible 8,332 9,496
Tax cost in inventory 586 3,698
------- --------
Total deferred tax assets 14,441 17,926
Deferred tax liabilities
Accelerated tax depreciation 64,154 65,481
Deferred real estate gains 5,178 5,672
Commissioning costs -- 704
Other 1,526 1,803
------- --------
Total deferred tax liabilities 70,858 73,660
------- --------
Net tax liability 56,417 55,734
Less current portion (asset) (6,236) (10,175)
------- --------
Net deferred tax liability $62,653 $ 65,909
======= ========
-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 $3.4 million in 1997, $2.9 million in 1996
and $2.6 million in 1995. 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 $14.8 million, $15.1 million and $8.9 million for 1997, 1996
and 1995, 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 $1.9 million, $.7 million and $(.1) million for
1997, 1996 and 1995, respectively.
OPERATING LEASES
Total expense for operating leases for mobile equipment, office space and other
items (other than for mineral rights) amounted to $17.2 million in 1997, $16.4
million in 1996 and $12.0 million in 1995. Non-cancelable operating leases with
an initial or remaining term of more than one year totaled $61.2 million at May
31, 1997. Annual lease payments for the five succeeding years are $15.2 million,
$8.8 million, $8.6 million, $8.0 million and $6.6 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):
-------------------------------------------------------------
1997 Aug. Nov. Feb. May
-------------------------------------------------------------
Net Sales
Steel $ 149,527 $ 143,637 $147,715 $175,797
Cement/concrete 96,415 90,739 68,903 101,091
--------- --------- -------- --------
245,942 234,376 216,618 276,888
========= ========= ======== ========
Operating profit
Steel 15,508 14,754 17,861 23,364
Cement/concrete 25,513 22,557 8,176 26,802
--------- --------- -------- --------
41,021 37,311 26,037 50,166
========= ========= ======== ========
Net income 19,884 17,903 10,126 27,561
Per share
Net income* .87 .79 .47 1.29
Dividends .05 .05 .075 .075
Stock price
High 34 5/16 33 7/16 29 5/16 29 1/4
Low 31 5/16 26 15/16 24 1/8 20 7/8
-------------------------------------------------------------
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 .76 .95 .70 1.11
Dividends .05 .05 .05 .05
Stock price
High 24 7/8 27 5/8 31 1/8 34 5/8
Low 17 13/16 23 1/4 25 1/8 30 1/4
* 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-
MERGER PROPOSAL
On May 22, 1997, the Company made an offer to merge with Chaparral Steel
Company. Of the approximately 28.4 million shares of Chaparral outstanding at
May 31, 1997, the Company owns 24.0 million shares with the balance of the
outstanding shares publicly traded on the New York Stock Exchange. Under the
terms of the offer, owners of the publicly traded shares of Chaparral would
receive consideration of $14.25 per share.
-25-
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, 1997 and
1996 and the related statements of income and cash flows for each of the three
years in the period ended May 31, 1997, 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 1997 1996
----------------------------------------------------------------------
Assets
Current assets
Cash $ 14 $ 7,603
Notes and accounts receivable -- 54,043
Inventories -- 24,654
Prepaid expenses -- 17,722
-------- --------
TOTAL CURRENT ASSETS 14 104,022
Other assets
Investment in and net advances to subsidiaries 574,894 313,997
Other 1,714 19,244
-------- --------
576,608 333,241
Property, plant and equipment
Land and land improvements -- 73,997
Buildings -- 26,546
Machinery and equipment -- 305,618
-------- --------
-- 406,161
Less allowances for depreciation and depletion -- 265,839
-------- --------
-- 140,322
-------- --------
$576,622 $577,585
======== ========
Liabilities and shareholders' equity
Current liabilities
Trade accounts payable $ 2 $ 17,502
Accrued interest, wages and other items 301 17,793
Current portion of long-term debt 780 1,109
-------- --------
TOTAL CURRENT LIABILITIES 1,083 36,404
Long-term debt 122,255 93,512
Deferred federal income taxes and other credits 473 27,647
Shareholders' equity
Common stock, $1 par value 25,067 12,534
Additional paid-in capital 255,149 266,303
Retained earnings 262,774 193,929
Cost of common shares in treasury (90,179) (52,744)
-------- --------
452,811 420,022
-------- --------
$576,622 $577,585
======== ========
-26-
FINANCIAL INFORMATION OF REGISTRANT-Continued
Statements of Income
- --------------------
Year Ended May 31,
------------------------------------------------------------------------------
In thousands 1997 1996 1995
------------------------------------------------------------------------------
Net sales $ -- $ 347,511 $290,592
Costs and expenses (income)
Cost of products sold -- 245,037 209,622
Selling, general and administrative 1,105 38,802 34,264
Interest 7,833 10,476 8,192
Other income (107) (7,168) (7,538)
-------- --------- --------
8,831 287,147 244,540
-------- --------- --------
Income (loss) before the following items (8,831) 60,364 46,052
Income taxes (benefit) (2,981) 20,237 13,566
-------- --------- --------
Income (loss) from operations (5,850) 40,127 32,486
Equity in earnings of subsidiaries
Income from continuing operations
of subsidiaries 81,324 39,827 15,531
-------- --------- --------
NET INCOME $ 75,474 $ 79,954 $ 48,017
======== ========= ========
Statements of Cash Flows
- ------------------------
Year Ended May 31,
------------------------------------------------------------------------------
In thousands 1997 1996 1995
------------------------------------------------------------------------------
Net cash provided by operations $ 23,935 $ 71,770 $ 48,606
Investing activities
Capital expenditures -- (57,357) (30,154)
Proceeds from disposition of assets -- 1,418 1,899
Net investment in subsidiaries (18,558) 4,560 (566)
Other - net -- (2,260) (1,696)
-------- --------- --------
Net cash used by investing (18,558) (53,639) (30,517)
Financing activities
Proceeds of long-term borrowing 68,750 97,500 49,500
Debt retirements (38,530) (108,686) (29,324)
Purchase of treasury shares (41,572) (417) (54,688)
Dividends paid (5,361) (4,451) (3,618)
Other - net 3,747 (1,011) (1,619)
-------- --------- --------
Net cash used by financing (12,966) (17,065) (39,749)
-------- --------- --------
Increase (decrease) in cash (7,589) 1,066 (21,660)
Cash at beginning of year 7,603 6,537 28,197
-------- --------- --------
Cash at end of year $ 14 $ 7,603 $ 6,537
======== ========= ========
-27-
FINANCIAL INFORMATION OF REGISTRANT-Continued
Notes to Financial Information of Registrant
- --------------------------------------------
For business purposes, the Company transferred its net operating assets to
wholly-owned subsidiaries effective June 1, 1996.
Long-term Debt: Annual maturities of long-term debt for each of the five
succeeding years are $.8, $.7, $.7, $.7, and $40.7 million. Long-term debt is
comprised of the following:
----------------------------------------------------------------------------------------
In thousands 1997 1996
----------------------------------------------------------------------------------------
Bank obligations, maturing through 2001, interest rates
from 6.31% to 6.38% (.625% over LIBOR) $40,000 $ 9,000
Senior notes due through 2008, interest rates
average 7.28% 75,000 75,000
Pollution control bonds, due through 2007, interest rate
6.38% (75% of prime) 7,935 8,615
Other, interest rate 9.5% 100 2,006
------- -------
123,035 94,621
Less current maturities 780 1,109
------- -------
$122,255 $93,512
======== =======
The Company has available a bank-financed $100 million long-term line of credit.
In addition to the $40 million currently outstanding under this line, $8.9
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.
Dividends from Subsidiaries: The Company received cash dividends from
subsidiaries of $31.9 million in 1997, $4.8 million in 1996 and $4.8 million in
1995.
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 $231.6 million and the
restricted retained earnings were $92.3 million at May 31, 1997. The retained
earnings of subsidiaries included in the consolidated retained earnings at May
31, 1997, were $116.1 million.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
-----------------------------------------------------
None
-28-
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, 1997, 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, 1997 and 1996
Consolidated Statements of Income - Years ended May 31, 1997, 1996 and
1995
Consolidated Statements of Cash Flows - Years ended May 31, 1997, 1996
and 1995
Consolidated Statements of Shareholders' Equity - Years ended May 31,
1997, 1996 and 1995
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 (previously filed and incorporated
by reference)
(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, 1997 Consolidated Financial Statements and is qualified in
its entirety by reference to such financial statements.
(b) Reports on Form 8-K
The Registrant filed a current report on Form 8-K dated May 30, 1997 and
electronically transmitted on June 2, 1997, disclosing that it had on May 22,
1997 offered to acquire the remaining outstanding shares of public stock of
Chaparral Steel Company not currently owned by Registrant.
-29-
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 16th day of July, 1997.
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 July 16, 1997
- -------------------------- (Principal Executive Officer)
Robert D. Rogers
/s/ Richard M. Fowler Vice President - Finance and July 16, 1997
- -------------------------- Chief Financial Officer
Richard M. Fowler (Principal Financial Officer)
/s/ James R. McCraw Vice President - Controller July 16, 1997
- -------------------------- (Principal Accounting Officer)
James R. McCraw
/s/ Robert Alpert* Director July 16, 1997
- --------------------------
Robert Alpert
/s/ Gordon E. Forward* Director July 16, 1997
- --------------------------
Gordon E. Forward
/s/ Richard I. Galland* Director July 16, 1997
- --------------------------
Richard I. Galland
/s/ Gerald R. Heffernan* Director July 16, 1997
- --------------------------
Gerald R. Heffernan
/s/ James M. Hoak* Director July 16, 1997
- --------------------------
James M. Hoak
/s/ Ralph B. Rogers* Director July 16, 1997
- --------------------------
Ralph B. Rogers
/s/ Robert D. Rogers Director July 16, 1997
- --------------------------
Robert D. Rogers
/s/ Ian Wachtmeister* Director July 16, 1997
- --------------------------
Ian Wachtmeister
/s/ Elizabeth C. Williams* Director July 16, 1997
- --------------------------
Elizabeth C. Williams
* BY /s/ James R. McCraw Vice President - Controller July 16, 1997
--------------------
James R. McCraw
-30-
INDEX TO EXHIBITS
Exhibits Page
3.1 Articles of Incorporation...................................... *
3.2 By-Laws........................................................ *
4 Instruments defining rights of security holders................ *
11.1 Statement re: computation of per share earnings............... 32
21.1 Subsidiaries of the Registrant................................. 33
23.1 Consent of Independent Auditors................................ 34
24.1 Power of Attorney for certain members of the Board of Directors 35
27 Financial Data Schedule........................................ **
* Previously filed and incorporated herein by reference.
** Electronically filed only.
-31-