2003 ANNUAL REPORT
EXHIBIT 13
CENTEX
CONSTRUCTION PRODUCTS, INC
(CONSTRUCTION PRODUCTS LOGO)
(PICTURES OF BAGS OF CEMENT, STACKS OF
GYPSUM WALLBOARD, ROLLS OF PAPER AND
A PILE OF AGGREGATES)
ABOUT CXP
Centex Construction Products, Inc. (NYSE: CXP) produces and distributes building
materials essential to the construction and renovation of homes, commercial,
industrial and school buildings. Our products are also indispensable in the
construction and improvement of America's infrastructure - our streets, roads
and highways. CXP is headquartered in Dallas, Texas, and serves national markets
through quarrying, manufacturing, and distribution units in 12 states. Our
operations are segmented by product group: Cement, Gypsum Wallboard, Paperboard,
and Concrete and Aggregates. CXP is one of only two publicly held companies
operating in the cement, gypsum wallboard, and concrete and aggregates
industries, CXP is 65.1% owned by Centex Corporation.
CEMENT
CXP's four manufacturing plants and network of 10 distribution terminals produce
and market cement in the western half of the United States. Annual production
capacity, net of two joint-venture partners' interests, is approximately 2.1
million tons, or about 2.2% of the nation's total capacity. CXP is the eleventh
largest U.S. cement manufacturer and the third largest U.S. owned cement
producer.
GYPSUM WALLBOARD
CXP's Gypsum Wallboard operation, which includes four facilities located in New
Mexico, Oklahoma and Colorado, is the nation's fifth largest wallboard producer.
Together, the plants have a total annual production capacity of approximately
2.7 billion square feet, representing about 8% of total U.S. capacity. During
fiscal 2003, CXP's gypsum wallboard production was shipped by rail and by truck
to a total of 36 states throughout the nation.
CONCRETE AND AGGREGATES
CXP's Concrete and Aggregates operations consist of 9 readymix concrete batch
plant sites, 122 readymix trucks and two aggregates plants that have
approximately 4 million tons of annual single-shift production capacity. The
plants are located in northern California and central Texas. CXP's northern
California aggregates deposit is believed to be the largest single aggregates
deposit in that area.
PAPERBOARD
CXP's recycled Paperboard operation is located in southwestern Oklahoma. The
mill produces paperboard products, made from 100 percent reclaimed paper fiber,
which are used as facing paper in the manufacturing of gypsum wallboard and
industrial and consumer paperboard products. Annual production capacity is
approximately 275,000 tons. The Lawton mill produces gypsum paperboard that is
lighter than other products currently available.
MAJOR FACILITIES
CEMENT PLANTS
- - Illinois Cement Company - LaSalle, Illinois*
- - Mountain Cement Company - Laramie, Wyoming
- - Nevada Cement Company - Fernley, Nevada
- - Texas-Lehigh Cement Company LP - Buda, Texas*
GYPSUM WALLBOARD PLANTS
- - American Gypsum Company - Albuquerque and Bernalillo, New Mexico; Gypsum,
Colorado; and Duke, Oklahoma
CONCRETE AND AGGREGATES PLANTS
- - Centex Materials LLC - Austin and Buda, Texas
- - Mathews Readymix LLC - Marysville, California
- - Western Aggregates LLC - Marysville, California
PAPERBOARD PLANT
- - Republic Paperboard Company LLC - Lawton, Oklahoma
* 50%-owned with joint-venture partners
(MAP OF UNITED STATES)
FINANCIAL HIGHLIGHTS (1)
(Amounts in Thousands, Except Per Share Data)
FOR THE YEARS ENDED MARCH 31,
----------------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
REVENUES (2) $501,257 $471,083 $441,127 $470,465 $381,900
EARNINGS BEFORE INCOME TAXES $ 86,613 $ 59,699 $ 92,263 $170,177 $121,127
NET EARNINGS $ 57,606 $ 39,706 $ 59,429 $108,232 $ 77,289
DILUTED EARNINGS PER SHARE $ 3.11 $ 2.15 $ 3.22 $ 5.63 $ 3.71
CASH DIVIDENDS PER SHARE $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20
TOTAL ASSETS $712,078 $743,352 $794,622 $438,139 $364,683
TOTAL DEBT $ 80,927 $182,380 $278,828 $ 400 $ 480
STOCKHOLDERS' EQUITY $479,832 $427,832 $392,320 $340,472 $279,920
AVERAGE DILUTED SHARES OUTSTANDING 18,524 18,461 18,473 19,211 20,832
BOOK VALUE PER SHARE AT YEAR END $ 26.10 $ 23.30 $ 21.40 $ 18.33 $ 14.18
(1) The financial highlights should be read in conjunction with the Consolidated
Financial Statements and the Notes to Consolidated Financial Statements for
matters that affect the comparability of the information presented above.
(2) The company adopted the provisions of Emerging Issues Task Force Issue No.
00-10, "Accounting for Shipping and Handling Fees and Costs," during fiscal year
2001. As a result of this adoption, net revenues have been restated to include
freight and delivery costs billed to customers. Previously such billings were
offset against corresponding expenses in cost of sales.
STOCK PRICES AND DIVIDENDS
FISCAL YEAR ENDED MARCH 31, 2003 FISCAL YEAR ENDED MARCH 31, 2002
---------------------------------- -----------------------------------
PRICE PRICE
-------------------- -------------------
QUARTER HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
- ------- ---- --- --------- ---- --- ---------
FIRST $45.25 $35.54 $0.05 $34.25 $25.70 $0.05
SECOND $40.35 $32.57 $0.05 $34.80 $27.83 $0.05
THIRD $37.70 $31.25 $0.05 $33.32 $28.05 $0.05
FOURTH $37.70 $32.45 $0.05 $39.90 $30.17 $0.05
The common stock of Centex Construction Products, Inc. is traded on the New York
Stock Exchange (ticker symbol CXP). The approximate number of record holders of
the common stock of CXP as of June 4, 2003 was 327. The closing price of CXP's
common stock on the New York Stock Exchange on June 4, 2003 was $38.70.
TABLE OF CONTENTS
2 LETTER TO THE SHAREHOLDERS
5 FINANCIAL INFORMATION
1
TO OUR SHAREHOLDERS
DESPITE DIFFICULT ECONOMIC CONDITIONS,
CENTEX CONSTRUCTION PRODUCTS PERFORMED AT A HIGH LEVEL
DURING FISCAL 2003.
OUR SIGNIFICANT ACHIEVEMENTS INCLUDED:
- - REVENUES ROSE 6% TO AN ALL-TIME HIGH OF $501.3 MILLION;
- - NET EARNINGS INCREASED 45% TO $57.6 MILLION;
- - EARNINGS PER SHARE ALSO GREW BY 45% TO $3.11;
- - DEBT-TO-CAPITALIZATION RATIO FELL TO 14.4%;
- - OUR CEMENT PLANTS WERE "SOLD OUT" FOR THE 17TH CONSECUTIVE YEAR;
- - THE LAWTON PAPERBOARD MILL OPERATED ABOVE DESIGNED CAPACITY; AND
- - SIGNIFICANT PRODUCTIVITY IMPROVEMENTS WERE REALIZED AT THE DUKE
WALLBOARD PLANT.
Our focus on disciplined development of people and processes has enabled us to
attain industry leading operating performances in the cement and wallboard
businesses. We carefully control production costs and constantly improve plant
efficiencies. As a result, the operating costs of our cement and wallboard
plants have risen by less than 2% during the last five years while plant
production capacities have been increased every year.
Operating low-cost, highly efficient plants allows us to achieve superior
returns when the economy is strong while remaining solidly profitable during
more difficult economic times. The benefits of our operating philosophies were
apparent in fiscal 2003.
Our cement operations recorded a good year in a challenging operating
environment. Operating profits declined by approximately 10%, principally as a
result of slightly lower cement prices. However, all the plants operated at
capacity and were "sold out." Our 31% operating margin and return on net assets
employed of 43% continued to confirm the productivity of our plants.
2
Profits from our wallboard operations increased by almost 500%. These results
were achieved despite a weak commercial construction market and excess industry
production capacity. Significant progress was made in improving production
efficiencies at our Duke, Oklahoma wallboard facility, which is among the
nation's largest and most cost-effective wallboard plants. We believe that the
production costs of CXP's wallboard operations are among the lowest in the
industry.
Our paperboard plant in Lawton, Oklahoma made great strides towards achieving
its full potential. Profits improved by 77% and production exceeded originally
designed capacity. With the prospect of even greater plant production, we have
begun to expand our product line beyond the wallboard paper market into other
paper grades.
Earnings declined in our concrete and aggregates operations primarily as a
result of the decision to close the Georgetown, Texas quarry. Our other concrete
and aggregate assets in Texas and northern California continued their excellent
performances.
On March 31, 2003, Richard Jones, Jr. retired as CXP's President and Chief
Executive Officer. During his 13-year CXP career, Dick made significant and long
lasting contributions to CXP. He will be missed. Larry Hirsch, Chairman and
Chief Executive Officer of Centex Corporation, CXP's major shareholder, has
assumed the role of CXP's CEO. Steve Rowley, formerly Executive Vice
President-Cement, has been promoted to CXP's Chief Operating Officer.
CXP is in a very strong position. Our plants are in excellent operating
condition and, in many cases, have the capacity to increase sales as the economy
recovers. In addition, our debt continues to decline, which positions us to
explore ways to provide even greater value to our stockholders.
Our greatest strength is the quality of the people that work for CXP. Their
commitment to excellence will allow us to continue to grow and prosper.
/s/ Laurence E. Hirsch /s/ Steven Rowley
- ---------------------- --------------------
Laurence E. Hirsch Steven R. Rowley
Chairman and Executive Vice President and
Chief Executive Officer Chief Operating Officer
3
FINANCIAL DATA
(BAR CHART)
REVENUES
($ in millions)
99 $382
00 $470
01 $441
02 $471
03 $501
(BAR CHART)
NET EARNINGS
($ in millions)
99 $ 77
00 $108
01 $ 59
02 $ 40
03 $ 58
(BAR CHART)
STOCKHOLDERS' EQUITY
($ in millions)
99 $280
00 $340
01 $392
02 $428
03 $480
(BAR CHART)
TOTAL ASSETS
($ in millions)
99 $365
00 $438
01 $795
02 $743
03 $712
(BAR CHART)
EARNINGS PER SHARE
(in dollars)
99 $3.71
00 $5.63
01 $3.22
02 $2.15
03 $3.11
(BAR CHART)
TOTAL DEBT
($ in millions)
99 $ 1
00 $ 0
01 $279
02 $182
03 $ 81
4
FINANCIAL INFORMATION
6 CONSOLIDATED STATEMENTS OF EARNINGS
7 CONSOLIDATED BALANCE SHEETS
8 CONSOLIDATED STATEMENTS OF CASH FLOWS
9 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27 REPORT OF INDEPENDENT AUDITORS
28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
38 SUMMARY OF SELECTED FINANCIAL DATA
40 QUARTERLY RESULTS
41 BOARD OF DIRECTORS AND OFFICERS
42 CORPORATE INFORMATION
5
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands, except per share data)
FOR THE YEARS ENDED MARCH 31,
-----------------------------------------
2003 2002 2001
--------- --------- ---------
REVENUES
CEMENT $ 173,198 $ 183,154 $ 178,783
GYPSUM WALLBOARD 212,790 183,500 187,347
PAPERBOARD 92,898 84,293 31,492
CONCRETE AND AGGREGATES 56,598 57,621 61,101
OTHER, NET 2,885 (355) 3,673
LESS: INTERSEGMENT SALES (37,112) (37,130) (21,269)
--------- --------- ---------
501,257 471,083 441,127
COSTS AND EXPENSES
CEMENT 118,768 122,981 119,169
GYPSUM WALLBOARD 185,594 178,857 160,250
PAPERBOARD 75,284 74,316 30,124
CONCRETE AND AGGREGATES 56,866 53,220 53,547
LESS: INTERSEGMENT PURCHASES (37,112) (37,130) (21,269)
CORPORATE GENERAL AND ADMINISTRATIVE 5,654 5,486 4,691
INTEREST EXPENSE, NET 9,590 13,654 2,352
--------- --------- ---------
414,644 411,384 348,864
--------- --------- ---------
EARNINGS BEFORE INCOME TAXES 86,613 59,699 92,263
INCOME TAXES 29,007 19,993 32,834
--------- --------- ---------
NET EARNINGS $ 57,606 $ 39,706 $ 59,429
========= ========= =========
EARNINGS PER SHARE
BASIC $ 3.13 $ 2.16 $ 3.23
========= ========= =========
DILUTED $ 3.11 $ 2.15 $ 3.22
========= ========= =========
DIVIDEND PAID PER SHARE $ 0.20 $ 0.20 $ 0.20
========= ========= =========
See notes to consolidated financial statements.
6
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
MARCH 31,
-------------------------
2003 2002
--------- ---------
ASSETS
CURRENT ASSETS -
CASH AND CASH EQUIVALENTS $ 13,599 $ 11,403
ACCOUNTS AND NOTES RECEIVABLE, NET 52,498 58,957
INVENTORIES 58,254 54,220
--------- ---------
TOTAL CURRENT ASSETS 124,351 124,580
--------- ---------
PROPERTY, PLANT AND EQUIPMENT - 794,380 796,766
LESS: ACCUMULATED DEPRECIATION (259,544) (230,283)
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET 534,836 566,483
NOTES RECEIVABLE, NET 1,197 1,299
GOODWILL 40,290 41,088
OTHER ASSETS 11,404 9,902
--------- ---------
$ 712,078 $ 743,352
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES -
NOTE PAYABLE $ 25,257 $ 18,630
ACCOUNTS PAYABLE 29,302 31,155
ACCRUED LIABILITIES 41,556 48,204
CURRENT PORTION OF LONG-TERM DEBT 80 80
--------- ---------
TOTAL CURRENT LIABILITIES 96,195 98,069
--------- ---------
LONG-TERM DEBT 55,590 163,670
DEFERRED INCOME TAXES 80,461 53,781
STOCKHOLDERS' EQUITY -
COMMON STOCK, PAR VALUE $0.01; AUTHORIZED 50,000,000 SHARES;
ISSUED AND OUTSTANDING 18,379,558 AND 18,358,473 SHARES, RESPECTIVELY 184 184
CAPITAL IN EXCESS OF PAR VALUE 14,228 15,153
ACCUMULATED OTHER COMPREHENSIVE LOSSES (2,061) (1,063)
RETAINED EARNINGS 467,481 413,558
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 479,832 427,832
--------- ---------
$ 712,078 $ 743,352
========= =========
See notes to consolidated financial statements.
7
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
FOR THE YEARS ENDED MARCH 31,
-----------------------------------------
2003 2002 2001
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
NET EARNINGS $ 57,606 $ 39,706 $ 59,429
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES, NET OF EFFECT
OF NON-CASH ACTIVITY-
DEPRECIATION, DEPLETION AND AMORTIZATION 36,791 35,808 24,871
DEFERRED INCOME TAX PROVISION 28,748 21,229 23,377
ASSET IMPAIRMENT CHARGE 2,586 -- --
LOSS ON ASSET SALE 564 -- --
DECREASE (INCREASE) IN ACCOUNTS AND NOTES RECEIVABLE 6,561 34,268 (3,223)
(INCREASE) DECREASE IN INVENTORIES (4,034) 1,788 (2,805)
DECREASE IN ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (9,499) (12,387) (5,707)
DECREASE IN OTHER ASSETS, NET 2,440 231 7,485
DECREASE IN INCOME TAXES PAYABLE (1,100) -- (1,447)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 120,663 120,643 101,980
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
PROPERTY, PLANT AND EQUIPMENT ADDITIONS, NET (14,290) (19,024) (16,250)
ACQUISITION OF NET ASSETS -- -- (342,200)
PROCEEDS FROM ASSET DISPOSITIONS 3,414 855 --
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (10,876) (18,169) (358,450)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
PROCEEDS FROM NOTE PAYABLE 6,627 18,630 --
PROCEEDS FROM LONG-TERM DEBT -- -- 268,500
REPAYMENT OF LONG-TERM DEBT (108,080) (105,580) (80)
REDEMPTION OF SUBORDINATED DEBT -- (9,498) (89,992)
DIVIDENDS PAID TO STOCKHOLDERS (3,683) (3,671) (3,690)
RETIREMENT OF COMMON STOCK (8,135) -- (6,198)
PROCEEDS FROM STOCK OPTION EXERCISES 5,680 301 507
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (107,591) (99,818) 169,047
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,196 2,656 (87,423)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,403 8,747 96,170
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,599 $ 11,403 $ 8,747
========= ========= =========
See notes to consolidated financial statements.
8
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands)
FOR THE YEARS ENDED MARCH 31,
-----------------------------------------
2003 2002 2001
--------- --------- ---------
COMMON STOCK
BALANCE AT BEGINNING OF PERIOD $ 184 $ 183 $ 186
RETIREMENT OF COMMON STOCK (2) -- (3)
STOCK OPTION EXERCISES 2 1 --
--------- --------- ---------
BALANCE AT END OF PERIOD 184 184 183
--------- --------- ---------
CAPITAL IN EXCESS OF PAR VALUE
BALANCE AT BEGINNING OF PERIOD 15,153 14,614 20,302
RETIREMENT OF COMMON STOCK (8,133) -- (6,195)
STOCK OPTION EXERCISES 7,208 539 507
--------- --------- ---------
BALANCE AT END OF PERIOD 14,228 15,153 14,614
--------- --------- ---------
RETAINED EARNINGS
BALANCE AT BEGINNING OF PERIOD 413,558 377,523 321,773
DIVIDENDS TO STOCKHOLDERS (3,683) (3,671) (3,679)
NET EARNINGS 57,606 39,706 59,429
--------- --------- ---------
BALANCE AT END OF PERIOD 467,481 413,558 377,523
--------- --------- ---------
ACCUMULATED OTHER COMPREHENSIVE LOSSES
BALANCE AT BEGINNING OF PERIOD (1,063) -- (1,789)
UNREALIZED GAIN ON INVESTMENT SECURITIES, NET OF TAX -- -- 1,789
UNREALIZED GAIN (LOSS) ON HEDGING INSTRUMENTS, NET OF TAX 484 (1,063) --
MINIMUM PENSION LIABILITY, NET OF TAX (1,482) -- --
--------- --------- ---------
BALANCE AT END OF PERIOD (2,061) (1,063) --
--------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY $ 479,832 $ 427,832 $ 392,320
========= ========= =========
See notes to consolidated financial statements.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(A) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Centex
Construction Products, Inc. and its majority-owned subsidiaries ("CXP" or the
"Company") after the elimination of all significant intercompany balances and
transactions. CXP is a holding company whose assets consist of its investments
in its subsidiaries, intercompany balances and holdings of cash and cash
equivalents. The businesses of the consolidated group are conducted through
CXP's subsidiaries. In addition, the Company holds 50% joint venture interests
in its cement plants in Illinois and Texas and has proportionately consolidated
its pro rata interest in the revenues, expenses, assets and liabilities of those
extractive industry ventures.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents include short-term, highly liquid investments with original
maturities of three months or less, and are recorded at cost, which approximates
market value. Included in cash and cash equivalents at March 31, 2003 and 2002
is $4.1 million and $3.6 million, respectively, belonging to the Company's
50%-owned joint ventures.
ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable have been shown net of the allowance for doubtful
accounts of $4.9 million and $4.6 million at March 31, 2003 and 2002,
respectively. The allowance for non-collection of receivables is based upon
analysis of economic trends in the construction industry, detailed analysis of
the expected collectibility of accounts receivable that are past due and the
expected collectibility of overall receivables. The Company has no significant
credit risk concentration among its diversified customer base.
Notes receivable at March 31, 2003 are collectible primarily over three
years. The weighted average interest rate at March 31, 2003 and 2002 was 5.4%
and 7.1%, respectively.
INVENTORIES
Inventories are stated at the lower of average cost (including applicable
material, labor, depreciation, and plant overhead) or market. Inventories
consist of the following:
MARCH 31,
--------------------
2003 2002
------- -------
RAW MATERIALS AND MATERIALS-IN-PROGRESS $16,143 $15,218
FINISHED CEMENT 5,507 5,636
AGGREGATES 3,021 2,772
GYPSUM WALLBOARD 5,520 5,140
PAPERBOARD 4,819 2,894
REPAIR PARTS AND SUPPLIES 22,119 21,576
FUEL AND COAL 1,125 984
------- -------
$58,254 $54,220
======= =======
Centex Construction Products, Inc. and Subsidiaries 10
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Major renewals and
improvements are capitalized and depreciated. Repairs and maintenance are
expensed as incurred. Depreciation is provided on a straight-line basis over the
estimated useful lives of depreciable assets. Depreciation expense was $35.2
million, $34.4 million and $23.7 million for the years ended March 31, 2003,
2002 and 2001, respectively. Raw material deposits are depleted as such deposits
are extracted for production utilizing the units-of-production method. Costs and
accumulated depreciation applicable to assets retired or sold are eliminated
from the accounts and any resulting gains or losses are recognized at such time.
The estimated lives of the related assets are as follows:
PLANTS 20 to 30 YEARS
BUILDINGS 20 to 40 YEARS
MACHINERY AND EQUIPMENT 3 to 20 YEARS
The Company periodically evaluates whether current events or circumstances
indicate that the carrying value of its depreciable assets may not be
recoverable. At March 31, 2003 and 2002, management believes no events or
circumstances indicate that the carrying value may not be recoverable.
INVESTMENT SECURITIES
Investments in debt or marketable equity securities are reported at fair value
based primarily on quoted market prices. All investment securities are
designated as available for sale, with unrealized gains and losses included in
stockholders' equity, net of applicable taxes. Investment securities are
regularly reviewed for impairment based on criteria that include the extent to
which cost exceeds market value, the duration of any market decline, and the
financial health of the issuer. Unrealized losses that are other than temporary
are recognized in earnings. Realized gains and losses are accounted for on the
specific identification method. During the year ended March 31, 2001, the
Company sold an investment in marketable equity securities for $10.8 million and
recognized a gain of $1.9 million. The gain is included in other net revenues on
the consolidated statements of earnings.
OTHER ASSETS
Other assets are primarily composed of loan fees and financing costs, prepaid
pension costs and other expenses, deposits, identified intangible assets other
than goodwill and assets held for sale.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." That
statement requires, among other things, that deferred taxes be provided on
differences between the financial reporting basis and tax basis of assets and
liabilities using existing tax laws and rates.
STOCK REPURCHASES
The Company's Board of Directors has authorized the repurchase of a cumulative
total of 6,101,430 shares of the Company's common stock. The Company repurchased
and retired 223,384 shares, at a cost of $8.1 million, in Fiscal 2003, no shares
in Fiscal 2002 and 264,300 shares, at a cost of $6.2 million, in Fiscal 2001.
Cumulative shares repurchased at March 31, 2003 were 5,581,514, leaving
approximately 519,900 shares remaining under the Company's current
authorization. Centex Corporation ("Centex") owned 65.1% of the Company's
outstanding common stock at March 31, 2003.
COMPREHENSIVE LOSSES
Total comprehensive income is defined as the total of net earnings plus all
other non-owner changes in equity. Securities that are classified as
available-for-sale are stated at market value as determined by the most recently
traded price at the balance sheet date. The unrealized gain or loss on hedging
instruments represents the deferral in other comprehensive losses of the
unrealized gain or loss on swap agreements designed as cash flow hedges. The
accounting
11 Centex Construction Products, Inc. and Subsidiaries
for interest rate swaps and other derivative financial instruments is discussed
in detail in Note M. The minimum pension liability relates to the accumulated
benefit obligation in excess of the fair value of assets of certain defined
benefit pension plans. These unrealized gains and losses, net of deferred tax,
are excluded from earnings and reported in a separate component of stockholders'
equity as "Accumulated Other Comprehensive Losses." Total comprehensive income
for the years ended March 31, 2003, 2002 and 2001 was $56.6 million, $38.6
million and $61.2 million, respectively.
STATEMENTS OF CONSOLIDATED EARNINGS - SUPPLEMENTAL DISCLOSURES
Selling, general and administrative expenses of the operating units are included
in costs and expenses of each segment. Corporate general and administrative
expenses are shown separately in the statements of consolidated earnings. Total
selling, general and administrative expenses for each of the periods are
summarized as follows:
FOR THE YEARS ENDED MARCH 31,
-----------------------------------
2003 2002 2001
------- ------- -------
OPERATING UNITS SELLING AND G&A $23,422 $23,550 $19,157
CORPORATE G&A 5,654 5,486 4,691
------- ------- -------
$29,076 $29,036 $23,848
======= ======= =======
% OF NET REVENUES 5.8% 6.2% 5.4%
======= ======= =======
Maintenance and repair expenses are included in each segment's costs
and expenses. The Company incurred expenses of $38.0 million, $35.1 million and
$36.0 million in the years ended March 31, 2003, 2002 and 2001, respectively,
for maintenance and repairs.
Other net revenues include clinker sales income, lease and rental
income, asset sale income, non-inventoried aggregates sales income, recycled
waste paper income, distribution center income and trucking income as well as
other miscellaneous revenue items and costs which have not been allocated to a
business segment.
STATEMENTS OF CONSOLIDATED CASH FLOWS - SUPPLEMENTAL DISCLOSURES
Interest payments made during the years ended March 31, 2003, 2002 and 2001 were
$8.9 million, $14.4 million and $9.0 million, respectively.
In Fiscal 2003, the Company made net payments of $1.5 million for
federal and state income taxes. The Company received a cash refund of $1.4
million in Fiscal 2002 compared to net payments of $19.7 million made for
federal and state income taxes in Fiscal 2001.
EARNINGS PER SHARE
The Company computes earnings per share in accordance with SFAS No. 128,
"Earnings Per Share." This statement established new standards for computing and
presenting earnings per share ("EPS"). SFAS No. 128 replaced the presentation of
primary EPS previously prescribed by Accounting Principles Board ("APB ")
Opinion No. 15 with a presentation of basic EPS which is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. SFAS No. 128 also requires dual presentation
of basic and diluted EPS.
Basic earnings per common share is based on the weighted average number
of common shares outstanding for the years ended March 31, 2003, 2002 and 2001
of 18,418,191, 18,350,716 and 18,405,116, respectively. Diluted earnings per
common share is based on the weighted average number of common shares
outstanding and share equivalents outstanding, assuming dilution from issued and
unexercised stock options outstanding, of 18,523,651, 18,461,414 and 18,473,114
for the years ended March 31, 2003, 2002 and 2001, respectively. Anti-dilutive
options to purchase shares of common stock that were excluded from the
computation of diluted earnings per share were 322,000 shares at an average
price of $38.92 for the year ended March 31, 2003, 551,000 shares at an average
price of $35.66 for the year ended March 31, 2002 and 618,000 shares at an
average price of $35.80 for the year ended March 31, 2001. All anti-dilutive
options have expiration dates ranging from April 2008 to May 2012.
Centex Construction Products, Inc. and Subsidiaries 12
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for employee stock options using the intrinsic value method
of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees," as allowed by SFAS No. 123, "Accounting for Stock-Based
Compensation." Generally, no expense is recognized related to the Company's
stock options because each option's exercise price is set at the stock's fair
market value on the date the option is granted. In Fiscal 2003, the Company
recorded a pre-tax charge of $0.1 million for employee stock-based compensation.
As of March 31, 2003, the Company adopted the disclosure requirements
of SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure." SFAS No. 148 provides for expanded disclosure concerning
stock-based compensation, including disclosures in interim financial statements,
and amends SFAS No. 123.
In accordance with SFAS No. 123, the Company discloses the compensation
cost based on the estimated fair value at the date of grant. For disclosures
under SFAS No. 123, employee stock options are valued at the grant date using
the Black-Scholes option-pricing model and compensation expense is recognized
ratably over the vesting period. The weighted average assumptions used in the
Black-Scholes model to value the option awards in Fiscal 2003, 2002, and 2001,
respectively, are as follows: dividend yield of 0.50 percent, 0.64 percent, and
0.94 percent; expected volatility of 32.3 percent, 32.2 percent, and 32.5
percent; risk-free interest rates of 5.0 percent, 6.9 percent, and 6.4 percent;
and expected lives of 10 years for all three years.
If the Company had recognized compensation expense for the stock option
plans based on the fair value at the grant dates for awards, pro forma net
earnings for Fiscal 2003, 2002 and 2001 would be as follows:
FOR THE YEARS ENDED MARCH 31,
--------------------------------------------
2003 2002 2001
---------- ---------- ----------
NET EARNINGS
AS REPORTED $ 57,606 $ 39,706 $ 59,429
ADD STOCK-BASED EMPLOYEE COMPENSATION INCLUDED IN THE
DETERMINATION OF NET INCOME AS REPORTED, NET OF TAX 47 -- --
DEDUCT FAIR VALUE OF STOCK-BASED EMPLOYEE COMPENSATION,
NET OF TAX (2,911) (1,887) (1,278)
PRO FORMA $ 54,742 $ 37,819 $ 58,151
BASIC EARNINGS PER SHARE
AS REPORTED $ 3.13 $ 2.16 $ 3.23
PRO FORMA $ 2.97 $ 2.06 $ 3.16
DILUTED EARNINGS PER SHARE
AS REPORTED $ 3.11 $ 2.15 $ 3.22
PRO FORMA $ 2.96 $ 2.05 $ 3.15
NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations," which is effective for fiscal
years beginning after June 15, 2002. SFAS No. 143 requires legal obligations
associated with the retirement of long-lived assets to be recognized at their
fair value at the time that the obligations are incurred. Upon initial
recognition of a liability, that cost should be capitalized as part of the
related long-lived asset and allocated to expense over the useful life of the
asset. SFAS No. 143's primary impact on the Company relates to the accounting of
quarry reclamation obligations. The Company will adopt SFAS No. 143 in the first
quarter of Fiscal 2004, and, based on current circumstances, does not believe
that the adoption of SFAS No. 143 will have a material impact on the Company's
financial position or results of operations.
In July 2002, the Financial Accounting Standards Board issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities." This
statement addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The principal
difference between SFAS No. 146 and EITF Issue No. 94-3 relates to SFAS No.
146's requirement for recognition of a liability for a cost associated with an
exit or disposal activity. SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. Under EITF Issue No. 94-3, a liability for an exit cost
13 Centex Construction Products, Inc. and Subsidiaries
was recognized at the date an entity committed to an exit plan. The provisions
of this statement are effective for exit or disposal activities that are
initiated after December 31, 2002. The adoption of this standard is not expected
to have a material impact on the consolidated financial statements of the
Company.
In November 2002, the Financial Accounting Standards Board issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").
FIN 45 requires a guarantor to recognize a liability for the fair value of the
obligation at the inception of the guarantee. The disclosure requirements of FIN
45, which are already effective, are disclosed in Note F - "Commitments and
Contingencies," while the recognition provisions will be applied on a
prospective basis to guarantees issued after December 31, 2002. The Company does
not expect the adoption of FIN 45 to have a material effect on its consolidated
financial statements.
In January 2003, the Financial Accounting Standard Board issued
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"),
clarifying the application of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," to certain entities in which equity investors do not have
the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The provisions of
FIN 46 are applicable no later than July 1, 2003. The Company is currently
evaluating the impact of FIN 46 on its consolidated financial statements.
In December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 provides for expanded
disclosure concerning stock-based compensation, including disclosures in interim
financial statements, and amends SFAS No. 123. SFAS No. 148's transition
guidance and provisions for annual disclosures are effective for fiscal years
ending after December 15, 2002. As noted earlier, the Company adopted the
disclosure requirements of SFAS No. 148.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of purchase price over net assets of businesses
acquired. The Company elected to early adopt SFAS No. 142, "Goodwill and Other
Intangible Assets," effective April 1, 2001. With the adoption of SFAS No. 142,
goodwill is no longer subject to amortization over its estimated useful life.
Rather, intangible assets, including goodwill, that are not subject to
amortization will be tested for impairment annually at the reporting unit level
using a two-step impairment assessment. Impairment testing must be performed
more frequently if events or changes in circumstances indicate that the asset
might be impaired. The first step is to identify potential impairment by
determining whether the carrying amount of a reporting unit exceeds its fair
value. If an impairment is identified, the second step of the goodwill
impairment test is to measure the amount of impairment loss, if any. In case of
impairment, the recorded costs would be written down to fair value on a
discounted basis. On January 1, 2003, the Company completed the first step of
its annual impairment assessment and determined that the fair value of its
reporting units exceeds its carrying amounts. In making such determination, the
Company evaluates the performance, on an undiscounted basis, of the underlying
businesses which gave rise to such amount. There have been no material changes
in the carrying amount of the Company's goodwill during the fiscal years ended
March 31, 2003 and 2002. Goodwill amortization totaled zero in Fiscal 2003 and
Fiscal 2002 and $1.0 million in Fiscal 2001. Prior to the early adoption of SFAS
No. 142, goodwill was amortized over 20 years.
The pro forma adoption of SFAS No. 142 for the fiscal year ended March
31, 2001 would have resulted in an increase in net earnings of $0.7 million with
a $0.04 and $0.03 increase in basic and diluted earnings per share,
respectively. The acquisition of the Strategic Assets that resulted in the
recording of the Company's goodwill occurred in the middle of the third quarter
of Fiscal 2001 (see Note J).
Other intangibles are intangibles associated with the Strategic Assets
purchase. Other intangibles are amortized on a straight-line basis over various
periods between seven months and 15 years. Other intangibles amortization
totaled $0.1 million in Fiscal 2003, $0.1 million in Fiscal 2002 and $0.2
million in Fiscal 2001. The balance of other intangibles at March 31, 2003 and
2002 was $1.1 million and $1.2 million, respectively. Other intangibles
amortization expense for the next five years is estimated to be $0.1 million
annually.
Centex Construction Products, Inc. and Subsidiaries 14
REVENUE RECOGNITION
Revenue from the sale of cement, gypsum wallboard, paperboard, concrete and
aggregates is recognized when title and ownership are transferred upon shipment
to the customer. Fees for shipping and handling are recorded as revenue, while
costs incurred for shipping and handling are recorded as expenses.
During Fiscal 2001, the Company adopted the provisions of the Emerging
Issues Task Force ("EITF") Issue No. 00-10, "Accounting for Shipping and
Handling Costs," which provides guidance regarding how shipping and handling
costs incurred by the seller and billed to a customer should be treated. EITF
00-10 requires that all amounts billed to a customer in a sales transaction
related to shipping and handling be classified as revenue, and the costs
incurred by the seller for shipping and handling be classified as an expense.
Historically, certain amounts the Company billed for shipping and handling had
been shown as an offset to shipping costs which are recorded in cost of goods
sold in the accompanying consolidated statements of earnings. There was no
impact to the Company's income from operations or net income as a result of the
adoption of EITF 00-10. Prior-year financial statements have been restated to
conform to the requirements of EITF 00-10. The amount of billed shipping and
handling costs reclassified from cost of goods sold to net sales in the
accompanying consolidated statements of earnings in Fiscal 2001 was $61.9
million. Such costs totaled $62.8 million for Fiscal 2002 and $61.8 million for
Fiscal 2003.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to be consistent with the
Fiscal 2003 presentation.
(B) PROPERTY, PLANT AND EQUIPMENT
Cost by major category and accumulated depreciation are summarized as follows:
MARCH 31,
-------------------------
2003 2002
--------- ---------
LAND AND QUARRIES $ 50,283 $ 49,049
PLANTS 691,389 693,606
BUILDINGS, MACHINERY AND EQUIPMENT 52,708 54,111
--------- ---------
794,380 796,766
ACCUMULATED DEPRECIATION (259,544) (230,283)
--------- ---------
$ 534,836 $ 566,483
========= =========
During the second quarter of Fiscal 2003, the Company closed its
Georgetown, Texas quarry and crushing plant. Assets written off during the
second quarter as part of the Georgetown closure totaled $2.6 million. Portions
of the Georgetown assets will be utilized at other company locations with the
remainder to be sold. The Georgetown assets held for sale have been reclassified
to other assets and totaled $0.7 million at March 31, 2003. During the first
quarter of Fiscal 2003, all of the Company's recycled fiber collection centers
were sold.
(C)INDEBTEDNESS
NOTE PAYABLE
Note payable balances are set forth below:
MARCH 31,
--------------------
2003 2002
------- -------
RECEIVABLES SECURITIZATION FACILITY $25,257 $18,630
The weighted average interest rate of the note payable borrowings
during Fiscal 2003 and 2002 was 1.7% and 4.2%, respectively. The interest rate
on note payable debt was 1.3% and 2.0% at March 31, 2003 and 2002, respectively.
The amount of accounts receivable pledged under the receivables securitization
program at March 31, 2003 and 2002 was $36.9 million and $39.3 million,
respectively.
15 Centex Construction Products, Inc. and Subsidiaries
LONG-TERM DEBT
Long-term debt is set forth below:
MARCH 31,
-------------------------
2003 2002
--------- ---------
BANK DEBT, DUE MARCH 2006, UNSECURED $ 55,000 $ 163,000
SUBORDINATED NOTES, 9 1/2%, DUE JULY 2008, UNSECURED 510 510
PROPERTY NOTE, INTEREST AT 7%, DUE MARCH 2005, SECURED 160 240
LESS: CURRENT MATURITIES (80) (80)
--------- ---------
$ 55,590 $ 163,670
========= =========
The weighted average interest rate of the bank debt borrowings during
Fiscal 2003 and 2002 was 3.1% and 5.4%, respectively. The interest rate on the
bank debt was 2.3% at March 31, 2003 and 3.7% at March 31, 2002.
Maturities of long-term debt during the next five fiscal years are:
2004, $80; 2005, $80; 2006, $55,000; 2007, zero; 2008, zero; thereafter, $510.
CREDIT FACILITIES
On November 10, 2000, the Company's $35.0 million unsecured revolving credit
facility used to finance its working capital and capital expenditures
requirements was cancelled and replaced with a new $325.0 million senior
revolving credit facility. During the quarter ended June 30, 2001, pursuant to
an Amended and Restated Credit Agreement, the credit facility was amended to
reduce the facility amount from $325.0 million to $275.0 million and to modify
certain financial and other covenants (the "Amended Credit Facility"). During
the quarter ended September 30, 2002, the Company again reduced the Amended
Credit Facility from $275.0 million to $175.0 million. On March 25, 2003,
pursuant to the Second Amended and Restated Credit Agreement, the Amended Credit
Facility was amended to reduce the facility amount from $175.0 million to $155.0
million, modify certain financial and other covenants and extend the maturity
date three years (the "New Credit Facility"). The principal balance of the New
Credit Facility matures on March 25, 2006. At March 31, 2003 and 2002, the
Company had $55.0 million outstanding under the New Credit Facility and $163.0
million outstanding under the Amended Credit Facility, respectively. The
borrowings under the New Credit Facility are guaranteed by all major operating
subsidiaries of the Company. At the option of the Company, outstanding principal
amounts on the New Credit Facility bear interest at a variable rate equal to:
(i) LIBOR, plus an agreed margin (ranging from 100 to 200 basis points), which
is to be established quarterly based upon the Company's ratio of EBITDA to total
funded debt; or (ii) an alternate base rate which is the higher of (a) the prime
rate or (b) the federal funds rate plus 1/2% per annum, plus an agreed margin
(ranging from 0 to 100 basis points). Interest payments are payable monthly or
at the end of the LIBOR advance periods, which can be up to a period of six
months at the option of the Company. Under the New Credit Facility, the Company
is required to adhere to a number of financial and other covenants, including
covenants relating to the Company's interest coverage ratio, consolidated funded
indebtedness ratio and minimum tangible net worth. At March 31, 2003, $91.2
million of borrowings were available to the Company.
Also on November 10, 2000, a subsidiary of the Company (the "Debtor
Subsidiary") assumed $100.0 million of 9.5% senior subordinated notes (the
"Notes") with a maturity date of July 15, 2008. Interest payments on the Notes
are due on January 15 and July 15. The Notes are redeemable at the option of the
Debtor Subsidiary, in whole or in part, at any time after July 15, 2003. Upon
the acquisition of the Strategic Assets on November 10, 2000, the Debtor
Subsidiary was required to commence a tender offer for the Notes at 101%. On
December 20, 2000, $90.0 million in principal amount of the Notes was tendered,
leaving $10.0 million outstanding. During the June 30, 2001 quarter, the Debtor
Subsidiary commenced another tender offer for the Notes at 108.75%. On June 28,
2001, the Debtor Subsidiary purchased $9.5 million in principal amount of the
Notes, leaving $0.5 million outstanding. Prior to the commencement of the second
tender offer, the Debtor Subsidiary obtained the necessary consents from a
majority of holders of the Notes to eliminate certain covenants and reporting
requirements.
Centex Construction Products, Inc. and Subsidiaries 16
On June 29, 2001, the Company entered into a $50.0 million trade
receivable securitization facility (the "Receivables Securitization Facility"),
which is funded through the issuance of commercial paper and backed by a 364-day
committed bank liquidity arrangement. The Receivables Securitization Facility
has a termination date of June 10, 2004, subject to a 364-day bank commitment
that was renewed on June 28, 2002 for another 364-day period terminating on June
28, 2003. The Receivables Securitization Facility is fully consolidated on the
balance sheet. Subsidiary company receivables are sold on a revolving basis
first to the Company and then to a wholly owned special purpose bankruptcy
remote entity of the Company. This entity pledges the receivables as security
for advances under the facility. The purpose of the Receivables Securitization
Facility is to obtain financing at a lower interest rate by pledging accounts
receivable. The borrowed funds have been used to pay down borrowings under the
New Credit Facility. Outstanding principal amounts under the Receivables
Securitization Facility bear interest at the commercial paper rate plus a
facility fee. Under the Receivables Securitization Facility, the Company is
required to adhere to certain financial and other covenants that are similar to
those in the New Credit Facility. The Company had $25.3 million outstanding
under the Receivables Securitization Facility at March 31, 2003.
The Company was in compliance with all financial ratios and tests at
March 31, 2003 and throughout the fiscal year under the Amended Credit Facility,
the New Credit Facility, the Notes and the Receivables Securitization Facility.
The New Credit Facility has a $50.0 million letter of credit facility.
Under the letter of credit facility, the Company pays a fee at a per annum rate
equal to the applicable margin for Eurodollar loans in effect from time to time
plus a one-time letter of credit fee in an amount equal to 0.125% of the initial
stated amount. At March 31, 2003, the Company had $8.8 million of letters of
credit outstanding.
(D) INCOME TAXES
The provision for income taxes includes the following components:
FOR THE YEARS ENDED MARCH 31,
-------------------------------------
2003 2002 2001
-------- -------- -------
CURRENT PROVISION (BENEFIT)
FEDERAL $ 0 $ (1,146) $ 7,423
STATE 259 (90) 2,034
-------- -------- -------
259 (1,236) 9,457
DEFERRED PROVISION
FEDERAL 26,919 18,949 20,900
STATE 1,829 2,280 2,477
-------- -------- -------
28,748 21,229 23,377
-------- -------- -------
PROVISION FOR INCOME TAXES $ 29,007 $ 19,993 $32,834
======== ======== =======
The effective tax rates vary from the federal statutory rates due to the
following items:
FOR THE YEARS ENDED MARCH 31,
----------------------------------------
2003 2002 2001
-------- -------- --------
EARNINGS BEFORE INCOME TAXES $ 86,613 $ 59,699 $ 92,263
======== ======== ========
INCOME TAXES AT STATUTORY RATE $ 30,315 $ 20,895 $ 32,292
INCREASES (DECREASES) IN TAX RESULTING FROM -
STATE INCOME TAXES, NET 1,357 1,424 2,932
STATUTORY DEPLETION IN EXCESS OF COST (3,048) (2,556) (2,600)
OTHER 383 230 210
-------- -------- --------
PROVISION FOR INCOME TAXES $ 29,007 $ 19,993 $ 32,834
======== ======== ========
EFFECTIVE TAX RATE 33% 33% 36%
17 Centex Construction Products, Inc. and Subsidiaries
The deferred income tax provision results from the following temporary
differences in the recognition of revenues and expenses for tax and financial
reporting purposes:
FOR THE YEARS ENDED MARCH 31,
--------------------------------------
2003 2002 2001
-------- -------- --------
EXCESS TAX DEPRECIATION AND AMORTIZATION $ 21,253 $ 39,951 $ 32,919
NET OPERATING LOSS CARRYOVER 3,757 (14,342) --
BAD DEBTS 32 26 (9,364)
UNIFORM CAPITALIZATION (390) (259) (73)
ACCRUAL CHANGES 3,390 (5,144) (317)
OTHER 706 997 212
-------- -------- --------
$ 28,748 $ 21,229 $ 23,377
======== ======== ========
Components of deferred income taxes are as follows:
MARCH 31,
------------------------
2003 2002
--------- --------
ITEMS GIVING RISE TO DEFERRED TAXES
EXCESS TAX DEPRECIATION AND AMORTIZATION $ 111,934 $ 90,681
OTHER 5,203 5,295
--------- --------
117,137 95,976
--------- --------
ITEMS GIVING RISE TO PREPAID TAXES
ACCRUAL CHANGES (13,499) (17,149)
NET OPERATING LOSS CARRYOVER (12,115) (14,342)
BAD DEBTS (10,328) (10,360)
UNIFORM CAPITALIZATION (734) (344)
--------- --------
(36,676) (42,195)
--------- --------
NET DEFERRED INCOME TAX LIABILITY $ 80,461 $ 53,781
========= ========
In Fiscal 2002, deferred taxes of $15.3 million were recast to reflect
an adjustment to deferred taxes and goodwill relating to the Strategic Assets
Purchase.
In Fiscal 2003, the Company utilized its regular and alternative
minimum tax carryovers from Fiscal 2002. Remaining net operating loss carryovers
available for Fiscal 2004 amount to $34.6 million and $4.0 million for regular
and alternative minimum tax, respectively. The net operating loss carryovers, if
unused, will expire after Fiscal 2022.
(E) BUSINESS SEGMENTS
The Company operates in four business segments: Cement, Gypsum Wallboard,
Recycled Paperboard, and Concrete and Aggregates, with Cement and Gypsum
Wallboard being the Company's principal lines of business. These operations are
conducted in the United States and include the mining of limestone and the
manufacture, production, distribution and sale of portland cement (a basic
construction material which is the essential binding ingredient in concrete),
the mining of gypsum and the manufacture and sale of gypsum wallboard, the
manufacture and sale of recycled paperboard to the gypsum wallboard industry and
other paperboard converters, the sale of readymix concrete and the mining and
sale of aggregates (crushed stone, sand and gravel). These products are used
primarily in commercial and residential construction, public construction
projects and projects to build, expand and repair roads and highways.
Demand for the Company's products is derived primarily from residential
construction, commercial and industrial construction and public (infrastructure)
construction which are highly cyclical and are influenced by prevailing economic
conditions including interest rates and availability of public funds. Due to the
low value-to-weight ratio of cement, concrete and aggregates, these industries
are largely regional and local with demand tied to local economic factors that
may fluctuate more widely than those of the nation as a whole.
Centex Construction Products, Inc. and Subsidiaries 18
The Company operates four cement plants, ten cement distribution
terminals, four gypsum wallboard plants, six gypsum wallboard reload centers, a
gypsum wallboard distribution center, a recycled paperboard mill, nine readymix
concrete batch plant locations and two aggregates processing plant locations.
The principal markets for the Company's cement products are Texas, northern
Illinois (including Chicago), the Rocky Mountains, northern Nevada, and northern
California. Gypsum wallboard and recycled paperboard are distributed throughout
the continental United States. Concrete and aggregates are sold to local
readymix producers and paving contractors in the Austin, Texas area and northern
California.
The following table sets forth certain financial information relating
to the Company's operations by segment:
FOR THE YEARS ENDED MARCH 31,
-----------------------------------------
2003 2002 2001
--------- --------- ---------
REVENUES
CEMENT $ 173,198 $ 183,154 $ 178,783
GYPSUM WALLBOARD 212,790 183,500 187,347
PAPERBOARD 92,898 84,293 31,492
CONCRETE AND AGGREGATES 56,598 57,621 61,101
OTHER, NET 2,885 (355) 3,673
--------- --------- ---------
538,369 508,213 462,396
LESS: INTERSEGMENT SALES (37,112) (37,130) (21,269)
--------- --------- ---------
$ 501,257 $ 471,083 $ 441,127
========= ========= =========
INTERSEGMENT SALES
CEMENT $ 3,505 $ 5,093 $ 6,347
PAPERBOARD 32,959 31,461 14,393
CONCRETE AND AGGREGATES 648 576 529
--------- --------- ---------
$ 37,112 $ 37,130 $ 21,269
========= ========= =========
SEGMENT OPERATING EARNINGS
CEMENT $ 54,430 $ 60,173 $ 59,614
GYPSUM WALLBOARD 27,196 4,643 27,097
PAPERBOARD 17,614 9,977 1,368
CONCRETE AND AGGREGATES (268) 4,401 7,554
OTHER, NET 2,885 (355) 3,673
CORPORATE GENERAL AND ADMINISTRATIVE (5,654) (5,486) (4,691)
INTEREST EXPENSE, NET (9,590) (13,654) (2,352)
--------- --------- ---------
$ 86,613 $ 59,699 $ 92,263
========= ========= =========
IDENTIFIABLE ASSETS
CEMENT $ 141,617 $ 141,734 $ 145,696
GYPSUM WALLBOARD 322,580 341,724 353,104
PAPERBOARD 193,661 206,607 243,026
CONCRETE AND AGGREGATES 35,100 39,174 33,233
OTHER, NET 19,120 14,113 19,563
--------- --------- ---------
$ 712,078 $ 743,352 $ 794,622
========= ========= =========
CAPITAL EXPENDITURES
CEMENT $ 4,916 $ 4,424 $ 6,199
GYPSUM WALLBOARD 3,028 1,197 4,521
PAPERBOARD 4,724 2,745 489
CONCRETE AND AGGREGATES 1,070 10,604 4,859
OTHER, NET 552 54 182
--------- --------- ---------
$ 14,290 $ 19,024 $ 16,250
========= ========= =========
DEPRECIATION, DEPLETION AND AMORTIZATION
CEMENT $ 8,595 $ 8,370 $ 8,219
GYPSUM WALLBOARD 15,325 15,070 10,529
19 Centex Construction Products, Inc. and Subsidiaries
PAPERBOARD 7,739 7,921 3,164
CONCRETE AND AGGREGATES 3,651 3,052 2,924
OTHER, NET 1,481 1,395 35
------- ------- -------
$36,791 $35,808 $24,871
======= ======= =======
Segment operating earnings represent revenues less direct operating
expenses, segment depreciation, and segment selling, general and administrative
expenses. The Company accounts for intersegment sales at market prices.
Corporate assets consist primarily of cash and cash equivalents, general office
assets and miscellaneous other assets. Goodwill at March 31, 2003 was $40.3
million and $41.1 million at March 31, 2002 and 2001, respectively. The segment
breakdown of goodwill at March 31, 2003 was Gypsum Wallboard ($33.3 million) and
Paperboard ($7.0 million) and at March 31, 2002 and 2001 was Gypsum Wallboard
($33.3 million) and Paperboard ($7.8 million).
Certain summarized financial information of the two cement joint ventures,
in the aggregate, is presented below. Applicable financial statement amounts
(i.e., 50% of respective amounts) that have been proportionately consolidated
into the Company's financial statements are:
FOR THE YEARS ENDED MARCH 31,
---------------------------------
2003 2002 2001
------- ------- -------
REVENUES $74,692 $78,725 $77,701
COSTS AND EXPENSES $49,610 $51,623 $50,953
EARNINGS BEFORE INCOME TAXES $25,082 $27,102 $26,748
(F) COMMITMENTS AND CONTINGENCIES
The Company, in the ordinary course of business, has various litigation,
commitments and contingencies. Management believes that none of the litigation
in which it or any subsidiary is involved, if finally determined unfavorably to
the Company, would have a material adverse effect on the consolidated financial
condition or results of operations of the Company.
The Company's operations and properties are subject to extensive and
changing federal, state and local laws, regulations and ordinances governing the
protection of the environment, as well as laws relating to worker health and
workplace safety. The Company carefully considers the requirements mandated by
such laws and regulations and has procedures in place at all of its operating
units to monitor compliance. Any matters which are identified as potential
exposures under these laws and regulations are carefully reviewed by management
to determine the Company's potential liability. Although management is not aware
of any exposures which would require an accrual under SFAS No. 5, "Accounting
for Contingencies," there can be no assurance that prior or future operations
will not ultimately result in violations, claims or other liabilities associated
with these regulations.
The Company has certain deductible limits under its workers'
compensation and liability insurance policies for which reserves are established
based on the undiscounted estimated costs of known and anticipated claims. The
Company has entered into standby letter of credit agreements relating to
workers' compensation and auto and general liability self-insurance. At March
31, 2003, the Company had contingent liabilities under these outstanding letters
of credit of approximately $8.8 million.
The Company is currently contingently liable for performance under $3.2
million in performance bonds required by certain states and municipalities, and
their related agencies. The bonds are principally for certain reclamation
obligations and mining permits. The Company has indemnified the underwriting
insurance company against any exposure under the performance bonds. In the
Company's past experience, no material claims have been made against these
financial instruments.
In the ordinary course of business, the Company executes contracts
involving indemnifications standard in the industry and indemnifications
specific to a transaction such as sale of a business. These indemnifications
might include claims relating to any of the following: environmental and tax
matters; intellectual property rights; governmental regulations and
employment-related matters; customer, supplier, and other commercial contractual
relationships; and financial matters. While the maximum amount to which the
Company may be exposed under such agreements cannot be estimated, it is the
opinion of management that these indemnifications are not expected to have a
material adverse effect on the Company's consolidated financial position or
results of operations. The Company currently has no outstanding guarantees.
Centex Construction Products, Inc. and Subsidiaries 20
The Company has a contract until October 2015 (subject to the
purchaser's right to shorten the term to October 2010) to supply approximately
35% to 40% of the Lawton, Oklahoma mill's output of gypsum-grade recycled
paperboard to another gypsum wallboard producer.
The Company has certain operating leases covering manufacturing,
transportation and certain other facilities and equipment. Rental expense for
the fiscal years 2003, 2002, and 2001 totaled $2.9 million, $3.0 million and
$2.6 million, respectively. Minimum annual rental commitments as of March 31,
2003, under noncancellable leases are set forth as follows:
FISCAL YEAR TOTAL
- ----------- -----
2004 $2,517
2005 $1,777
2006 $1,036
2007 $ 599
2008 $ 54
THEREAFTER $4,504
(G) STOCK OPTION PLANS
The Company has two stock option plans for certain directors, officers and key
employees of the Company: the Centex Construction Products, Inc. Amended and
Restated Stock Option Plan (the "1994 Plan") and the Centex Construction
Products, Inc. 2000 Stock Option Plan (the "2000 Plan"). Although the 1994 Plan
and the 2000 Plan provide that option grants may be at less than fair market
value at the date of grant, the Company has consistently followed the practice
of issuing options at or above fair market value at the date of grant. Under
both plans, option periods and exercise dates may vary within a maximum period
of 10 years. All option grants have been issued with vesting occurring near the
end of the option grants' 10-year life; however, the option grants may qualify
for early vesting, on an annual basis, if certain predetermined performance
criteria are met. The Company records proceeds from the exercise of options as
additions to common stock and capital in excess of par value. The federal tax
benefit, if any, is considered additional capital in excess of par value. No
charges or credits would be made to earnings unless options were to be granted
at less than fair market value at the date of grant. A summary of the activity
of the stock option plans is presented as follows:
FOR THE YEARS ENDED MARCH 31,
--------------------------------------------------------------------------------
2003 2002 2001
--------------------- ------------------ ----------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- --------- -------- --------
OUTSTANDING OPTIONS AT BEGINNING
OF YEAR 1,069,499 $28.66 1,046,009 $28.77 803,208 $31.72
GRANTED 142,000 $42.88 109,500 $27.45 393,500 $22.63
EXERCISED (244,469) $22.94 (19,711) $18.24 (31,330) $12.79
CANCELLED (27,452) $30.93 (66,299) $31.55 (119,369) $32.55
--------- -------- --------- --------- ---------
OUTSTANDING OPTIONS AT END OF YEAR 939,578 $32.23 1,069,499 $28.66 1,046,009 $28.77
========= ======== ========= ========= =========
OPTIONS EXERCISABLE AT END OF YEAR 577,294 548,537 336,994
========= ======== ========= ========= =========
WEIGHTED AVERAGE FAIR VALUE OF OPTIONS
GRANTED DURING THE YEAR $18.85 $14.95 $11.50
Centex Construction Products, Inc. and Subsidiaries 21
The following table summarizes information about stock options outstanding at
March 31, 2003:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-----------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE AVERAGE NUMBER OF AVERAGE
SHARES REMAINING EXERCISE SHARES EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE OUTSTANDING PRICE
- ------------------------ ----------- ---------------- -------- ----------- --------
$12.00 - $26.97 339,703 7.33 yrs $23.47 123,285 $22.09
$31.70 - $36.36 477,875 5.80 yrs $35.38 449,509 $35.57
$39.53 - $44.45 122,000 9.00 yrs $44.27 4,500 $39.53
----------- ---------------- -------- -----------
939,578 6.77 yrs $32.23 577,294 $32.72
=========== ================ ======== ===========
Shares available for future stock option grants were 1,099,350 at March
31, 2003.
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's long-term debt, before the interest rate swap,
of which 99% has floating rate terms, have been estimated based upon the
Company's current incremental borrowing rates for similar types of borrowing
arrangements. The carrying values of the Company's long-term debt approximate
fair value.
All assets and liabilities which are not considered financial
instruments have been valued using historical cost accounting. The carrying
values of cash and cash equivalents, accounts and notes receivable, accounts
payable and accrued liabilities approximate their fair values due to the
short-term maturities of these assets and liabilities.
(I) AGREEMENTS WITH CENTEX CORPORATION
On April 19, 1994 (the "Closing Date") the Company completed the sale of
11,730,000 shares, or 51%, of its common stock through an Initial Public
Offering. Prior to that time, the Company was a wholly owned subsidiary of
Centex. On the Closing Date the Company entered into certain agreements with
Centex to define the Company's ongoing relationship with Centex. The major
agreements are:
Indemnification Agreement: The Company and Centex entered into an
Indemnification Agreement, pursuant to which the Company and Centex agreed
generally to indemnify each other against substantially all liabilities relating
to the businesses of the Company and its subsidiaries as they had been and will
be conducted, including environmental liabilities.
Tax Separation Agreement: The Company and Centex entered into a Tax
Separation Agreement (the "Tax Agreement"). The Tax Agreement (i) provides for
the termination of any existing tax sharing or allocation arrangements between
the Company and Centex, (ii) specifies the manner in which the federal income
tax liability and certain state tax liabilities (including any subsequent
adjustments to such federal and state liabilities) of the consolidated group of
which Centex is the common parent (the "Group") will be allocated for the final
year in which the Company is a member of the Group and for any prior tax year of
the Group and (iii) specifies the manner in which audits or administrative or
judicial proceedings relating to federal income taxes and certain state taxes of
the Group will be controlled.
Administrative Services: Centex Service Company ("CSC"), a subsidiary
of Centex, provides the Company with employee benefit administration,
public/investor relations and certain other services. The Administrative
Services Agreement is renewable annually with the administrative fee determined
on an annual basis. The Company paid CSC an administrative fee of $0.2 million
in Fiscal 2003, 2002 and 2001, respectively. In addition, the Company reimburses
CSC for its out-of-pocket expenses incurred in connection with the performance
of such services.
22 Centex Construction Products, Inc. and Subsidiaries
(J) ACQUISITIONS
On November 10, 2000, the Company and a wholly owned subsidiary (together, the
"Purchasers") entered into a purchase agreement to acquire certain strategic
assets as summarized below (collectively, the "Strategic Assets"):
(1) A 1.1 billion square foot gypsum wallboard plant located in Duke,
Oklahoma;
(2) A short line railroad and railcars linking the Duke plant to
adjacent railroads;
(3) A 220,000 ton-per-year lightweight paper mill in Lawton, Oklahoma;
and
(4) A 50,000 ton-per-year Commerce City (Denver), Colorado paper mill.
Pursuant to the purchase agreement, the Purchasers paid aggregate
consideration consisting of (1) $338.2 million in cash, plus (2) the assumption
by the subsidiary of $100.0 million of 9.5% senior subordinated notes due in
2008. In exchange for this consideration, the subsidiary acquired the assets
described above and a $24.3 million net secured note receivable, which was
collected during Fiscal 2002.
The acquisition has been accounted for as a purchase, and accordingly,
the purchase price was allocated to the underlying assets acquired and
liabilities assumed based upon their estimated fair market values at the date of
acquisition. The results of operations of the Strategic Assets since November
10, 2000 are included in the Company's financial statements. The fair value of
tangible assets purchased, goodwill (prior to the adoption of SFAS 142,
amortized over a 20-year period) and other intangible assets is as follows:
CASH CONSIDERATION PAID
CXP CASH $ 150,000
BANK BORROWINGS 188,200
---------
338,200
CXP TRANSACTION COSTS 4,000
---------
TOTAL CASH CONSIDERATION 342,200
SUBORDINATED DEBT ASSUMED 100,000
LIABILITIES ASSUMED 24,358
---------
466,558
FAIR VALUE OF PROPERTY, PLANT, EQUIPMENT, INVENTORY, RECEIVABLES,
OTHER MISCELLANEOUS ASSETS AND APPLICABLE DEFERRED TAXES (423,039)
---------
GOODWILL AND OTHER INTANGIBLE ASSETS $ 43,519
=========
The unaudited pro forma results for the fiscal year ended March 31,
2001 assume that the acquisition was completed on April 1, 2000:
FOR THE YEAR ENDED
MARCH 31, 2001
------------------
REVENUES $520,380
NET EARNINGS $ 44,975
EARNINGS PER DILUTIVE SHARE $ 2.43
The pro forma results have been prepared for comparative purposes only
and include certain adjustments such as additional depreciation expense,
goodwill amortization and interest expense on new bank borrowings and debt
assumed. They do not purport to be indicative of the results of operations which
actually would have resulted had the combination been in effect at April 1, 2000
or of future results of operations of the consolidated entities.
Centex Construction Products, Inc. and Subsidiaries 23
(K) PENSION AND PROFIT SHARING PLANS
The Company has several defined benefit and defined contribution retirement
plans which together cover substantially all of its employees. The Company is
not a party to any multi-employer pension plan. Benefits paid under the defined
benefit plans covering certain hourly employees are based on years of service
and the employee's qualifying compensation over the last few years of
employment. The Company's funding policy is to generally contribute amounts that
are deductible for income tax purposes.
The following table provides a reconciliation of the defined benefit
plan obligations and fair value of plan assets over the two-year period ended
March 31, 2003 and a statement of the funded status as of March 31, 2003 and
2002:
2003 2002
------- -------
RECONCILIATION OF BENEFIT OBLIGATIONS
BENEFIT OBLIGATION AT APRIL 1, $ 6,569 $ 5,589
SERVICE COST - BENEFITS EARNED DURING THE PERIOD 1,132 232
INTEREST COST ON PROJECTED BENEFIT OBLIGATION 520 419
ACTUARIAL LOSS 639 522
BENEFITS PAID (247) (193)
------- -------
BENEFIT OBLIGATION AT MARCH 31, 8,613 6,569
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS
FAIR VALUE OF PLAN ASSETS AT APRIL 1, 6,158 4,691
ACTUAL RETURN ON PLAN ASSETS (1,013) 124
EMPLOYER CONTRIBUTIONS 667 1,536
BENEFITS PAID (247) (193)
------- -------
FAIR VALUE OF PLANS AT MARCH 31, 5,565 6,158
FUNDED STATUS
FUNDED STATUS AT MARCH 31, (3,048) (411)
UNRECOGNIZED LOSS FROM PAST EXPERIENCE DIFFERENT THAN THAT
ASSUMED AND EFFECTS OF CHANGES IN ASSUMPTIONS 1,219 1,794
UNRECOGNIZED PRIOR-SERVICE COST 3,786 614
------- -------
NET AMOUNT RECOGNIZED (PREPAID PENSION COST INCLUDED IN OTHER ASSETS) $ 1,957 $ 1,997
======= =======
Net periodic pension cost for the fiscal years ended March 31, 2003, 2002
and 2001, included the following components:
FOR THE YEARS ENDED MARCH 31,
-----------------------------
2003 2002 2001
----- ----- -----
SERVICE COST - BENEFITS EARNED DURING THE PERIOD $ 336 $ 232 $ 209
INTEREST COST OF PROJECTED BENEFIT OBLIGATION 520 419 379
EXPECTED RETURN ON PLAN ASSETS (490) (366) (463)
AMORTIZATION OF TRANSITION ASSET 192 65 (52)
AMORTIZATION OF PRIOR-SERVICE COST 150 103 101
----- ----- -----
NET PERIODIC PENSION COST $ 708 $ 453 $ 174
===== ===== =====
24 Centex Construction Products, Inc. and Subsidiaries
The following table sets forth the rates used in the actuarial
calculations of the present value of benefit obligations and the rate of return
on plan assets:
2003 2002 2001
---- ---- ----
WEIGHTED-AVERAGE DISCOUNT RATE 6.3% 7.0% 7.5%
RATE OF INCREASE IN FUTURE COMPENSATION LEVELS 3.5% 3.5% 3.5%
EXPECTED LONG-TERM RATE OF RETURN ON ASSETS 8.0% 8.0% 8.0%
The Company had at March 31, 2003 a minimum pension liability of $2.9
million related to the accumulated benefit obligation in excess of the fair
value of the plan assets.
The Company also provides a profit sharing plan, which covers
substantially all salaried and certain hourly employees. The profit sharing plan
is a defined contribution plan funded by employer discretionary contributions
and also allows employees to contribute on an after-tax basis up to 10% of their
base annual salary. Employees are fully vested to the extent of their
contributions and become fully vested in the Company's contributions over a
seven-year period. Costs relating to the employer discretionary contributions
for the Company's defined contribution plan totaled $2.3 million, $1.6 million
and $1.5 million in fiscal years 2003, 2002 and 2001, respectively.
In addition, as a part of the November 2000 Strategic Assets purchase,
the Company agreed to provide to former employees of the seller, who became
employed by the Company as a result of the November 2000 Strategic Asset
purchase, benefits substantially comparable to those provided under the seller's
welfare plans. These welfare plans included the seller's 401(k) plan which
included employer matching percentages. As a result, the Company made matching
contributions to its 401(k) plan totaling $0.1 million, $0.4 million and $0.2
million for these employees during fiscal years 2003, 2002 and 2001,
respectively.
(L) NET INTEREST EXPENSE
The following components are included in interest expense, net:
FOR THE YEARS ENDED MARCH 31,
------------------------------------
2003 2002 2001
------- -------- -------
INTEREST (INCOME) $ (65) $ (2,515) $(6,694)
INTEREST EXPENSE 8,247 14,918 8,766
OTHER EXPENSES 1,408 1,251 280
------- -------- -------
INTEREST EXPENSE, NET $ 9,590 $ 13,654 $ 2,352
======= ======== =======
Interest income includes interest on investments of excess cash and
interest on notes receivable. Components of interest expense include interest
associated with the assumed subordinated debt, the New Credit Facility, the
Amended Credit Facility, the Receivables Securitization Facility and commitment
fees based on the unused portion of the New Credit Facility and Amended Credit
Facility. Included in interest expense for Fiscal 2003 is $0.9 million of costs
resulting from the early termination of one of the Company's interest rate swaps
and the partial termination of the remaining interest rate swap relating to the
reduction of the outstanding debt levels. Other expenses include amortization of
debt issue costs, the New Credit Facility costs and the Amended Credit Facility
costs.
Centex Construction Products, Inc. and Subsidiaries 25
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of Centex Construction Products, Inc.
We have audited the accompanying consolidated balance sheets of Centex
Construction Products, Inc. and subsidiaries (the "Company") as of March 31,
2003 and 2002, and the related consolidated statements of earnings,
stockholders' equity, and cash flow for each of the three years in the period
ended March 31, 2003. 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 auditing standards generally
accepted in the United States. 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 Centex
Construction Products, Inc. and subsidiaries at March 31, 2003 and 2002, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 31, 2003, in conformity with accounting
principles generally accepted in the United States.
As discussed in Note A to the consolidated financial statements, in
fiscal year 2002, the Company changed its method of accounting for goodwill and
other intangible assets.
/s/ ERNST AND YOUNG LLP
Dallas, Texas,
May 9, 2003
26 Centex Construction Products, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
FISCAL YEAR 2003 COMPARED TO FISCAL YEAR 2002
OVERVIEW. Information presented for Fiscal 2003 and 2002 reflects the grouping
of Centex Construction Products' businesses into four segments, consisting of
Cement, Gypsum Wallboard, Recycled Paperboard and Concrete and Aggregates.
Concrete and Aggregates are broken out separately in the segment discussions.
Commercial construction, which is a significant component of the demand
for the Company's products, has declined dramatically and is expected to remain
at its currently depressed level. A large portion of the decline relates to the
completion of pre-9/11 projects and the absence of projects to replace them.
Infrastructure activity (road building) is performing short of expectations.
With highway construction funding softening, and the downturn in commercial
construction activity, U.S. cement consumption for calendar 2002 was below
calendar 2001 consumption. Congress recently approved Fiscal 2003 TEA-21 funding
(highway funding) in excess of $31 billion. Budget constraints at the State
level are likely to adversely affect the actual level of public works tendered
in calendar 2003.
Although new housing and home repair activity remains strong, the
gypsum wallboard industry experienced a softening in wallboard demand in the
latter part of calendar 2002. While the industry reported a 1.8% increase in
calendar 2002 consumption over calendar 2001 consumption, cumulative production
volume at the Company's Gypsum Wallboard plants during Fiscal 2003 was 72% of
its total capacity due to an "over capacity" situation in the gypsum wallboard
industry. During September 2002, the Company implemented price increases of up
to 15%; however, the price increase completely eroded by the end of calendar
2002 as monthly wallboard consumption from August 2002 to November 2002 was
below the same months' consumption for the prior year. Pricing continued to
soften and then stabilized in January 2003. During March 2003, the Company
implemented a price increase that eroded and implemented another price increase
in May 2003. Longer term, the level of wallboard demand and prices will be
determined by the strength of the housing market and wallboard industry
utilization levels.
In Austin, Texas, which is the Company's primary concrete and
aggregates market, the economy has been affected by weakened economic conditions
which negatively impacted concrete and aggregates demand and pricing in the
Austin market. On September 3, 2002, the Company announced the closing of its
aggregates facility in Georgetown, Texas (near Austin, Texas).
CONSOLIDATED RESULTS. Consolidated net revenues for Fiscal 2003 totaled
$501.3 million, up 6% from $471.1 million for Fiscal 2002. Higher net sales
prices in Gypsum Wallboard and Paperboard accounted for the majority of the
revenue gain. Operating earnings of $96.2 million in Fiscal 2003 were up 31%
from last fiscal year mainly due to a $22.6 million increase in Gypsum Wallboard
operating earnings. Net interest expense of $9.6 million in Fiscal 2003
decreased $4.1 million from Fiscal 2002 due to lower interest rates and reduced
debt levels. As a result of the foregoing, pre-tax earnings of $86.6 million
were 45% above Fiscal 2002 pre-tax earnings of $59.7 million. The Fiscal 2003
effective tax rate of 33.5%, the same rate as in Fiscal 2002, resulted in Fiscal
2003 net earnings of $57.6 million, a 45% increase from $39.7 million in Fiscal
2002. Diluted earnings per share in Fiscal 2003 of $3.11 were 45% higher than
the $2.15 for Fiscal 2002.
The following table compares sales volumes, average unit sales prices and
unit operating margins for the Company's operations:
SALES VOLUME AVERAGE NET
(THOUSANDS) SALES PRICE (1) OPERATING MARGIN
---------------- -------------------- ---------------------
2003 2002 2003 2002 2003 2002
----- ----- ------- ------- ------- -------
CEMENT (TON) 2,361 2,441 $ 66.84 $ 67.69 $ 23.05 $ 24.66
GYPSUM WALLBOARD (MSF) 1,933 1,930 $ 87.12 $ 72.97 $ 14.07 $ 2.41
PAPERBOARD (TON) 225 210 $408.44 $398.13 $ 78.12 $ 47.49
CONCRETE (CUBIC YARD) 681 673 $ 53.68 $ 55.93 $ 2.74 $ 3.71
AGGREGATES (TON) 4,159 4,265 $ 4.51 $ 4.33 $ (0.51) $ 0.45
(1)As historically reported. Does not include freight and delivery costs billed
to customers.
Centex Construction Products, Inc. and Subsidiaries 27
CEMENT. Cement revenues for Fiscal 2003 were $173.2 million, down 5%
from $183.2 million for the prior fiscal year due to decreased sales volume and
lower sales prices. Operating earnings of $54.4 million decreased 10% from $60.2
million in Fiscal 2002, which had been an all-time high, due to a 3% decrease in
sales volume, an $0.85 per ton sales price decline and a 2% increase in cost of
sales. Cement sales volume of 2.36 million tons was 80,000 tons below Fiscal
2002 sales volume. The Company supplemented its Fiscal 2003 manufactured cement
sales volume with 159,000 tons of purchased cement, down 98,000 tons from last
fiscal year. All of the net sales volume decline came from purchased cement as
all plants operated at their capacity and were "sold out." According to the
Portland Cement Association, calendar 2002 U.S. total cement consumption of
119.8 million short tons was 3% below calendar 2001 consumption. Cement imports
of 26.5 million short tons in calendar 2002 were 6.5% below prior year's cement
imports. CXP's Fiscal 2003 average net sales price of $66.84 per ton was 1%
below Fiscal 2002 as lower pricing in the northern California and Texas markets
was partially offset by higher pricing in the Company's other markets. Cost of
sales of $43.79 per ton increased $0.76 per ton over Fiscal 2002 due to higher
maintenance and energy costs.
GYPSUM WALLBOARD. Gypsum Wallboard revenues of $212.8 million increased
16% from Fiscal 2002 revenues. Higher average sales prices resulted in the
revenue gain. Operating earnings totaled $27.2 million in Fiscal 2003, up 486%
from $4.6 million in Fiscal 2002. Increased sales prices, partially offset by a
$2.49 per MSF increase in cost of sales, resulted in the earnings gain. Sales
volume of 1,933 million square feet ("MMSF") in Fiscal 2003 was level with
Fiscal 2002 sales volume. The Company's wallboard plants ran at approximately
72% of total annual capacity during Fiscal 2003 and 70% in Fiscal 2002. The
Company's plants are currently operating at less than full capacity. Excess
production capacity continues to negatively impact industry utilization rates.
U.S. wallboard consumption was 30.7 billion square feet in calendar 2002, the
second highest level on record, up 1.8% from calendar 2001 consumption. Despite
the erosion of the September 2002 price increase, Gypsum Wallboard's Fiscal 2003
average net sales price of $87.12 per thousand square feet ("MSF") increased 19%
from Fiscal 2002's net sales price. Fiscal 2003 cost of sales of $73.06 per MSF
increased 4% from last fiscal year's cost of sales due mostly to higher energy,
paper and labor costs.
PAPERBOARD. For Fiscal 2003, Paperboard reported revenues of $92.9
million and operating earnings of $17.6 million compared to revenues of $84.3
million and operating earnings of $10.0 million for Fiscal 2002. The operating
earnings gain resulted from the combination of increased sales volume, higher
sales prices and a 6% decrease in cost of sales. Included in Fiscal 2002's
operating earnings is a $2.3 million loss associated with the closing of the
Denver mill in last fiscal year's first quarter. Paperboard sales volume of
225,000 tons for this fiscal year was 7% greater than last fiscal year's sales
volume due mostly to the sale this year of an additional 10,000 tons of kraft
paper. The Company is now supplementing its gypsum wallboard paper sales volume
with lower priced non-gypsum paper sales volume. The average net sales price of
$408.44 per ton for Fiscal 2003 increased 3% from last year's average sales
price of $398.13 per ton due to higher sales prices for all grades of paper.
Cost of sales of $330.22 per ton was $20.32 per ton lower than last fiscal
year's cost of sales due to decreased maintenance and chemical costs.
CONCRETE AND AGGREGATES. Revenues from Concrete and Aggregates were
$56.6 million in Fiscal 2003, down 2% from $57.6 million in Fiscal 2002. The
revenue decline resulted mostly from lower Concrete sales prices. The Austin,
Texas market, which is the Company's largest concrete market, continues to be
negatively impacted by a depressed local economy. Fiscal 2003's operating loss
of $268,000 declined 106% from operating earnings of $4.4 million in Fiscal 2002
mainly due to costs associated with the closing of the Georgetown quarry and
lower Concrete and Aggregates operating margins. Concrete operating earnings of
$1.9 million were 25% below Fiscal 2002 operating earnings due to a 4% decrease
in sales prices, partially offset by a 3% decline in cost of sales. Concrete
sales volume of 681,000 cubic yards in Fiscal 2003 was 8,000 cubic yards above
Fiscal 2002 sales volume. Fiscal 2003's concrete net sales price of $53.68 per
cubic yard was 4% lower than $55.93 per cubic yard in Fiscal 2002 due to slow
demand in the Austin, Texas market. Cost of sales of $50.94 per cubic yard
decreased 3% from Fiscal 2002 due to decreased materials costs at the Texas
operation. Aggregates reported a Fiscal 2003 operating loss of $2.1 million
compared to a $1.9 million operating profit in
28 Centex Construction Products, Inc. and Subsidiaries
Fiscal 2002. The earnings decline resulted from increased cost of sales along
with costs associated with the closing of the Georgetown quarry. On September 3,
2002, the Company closed its aggregates quarry and processing plant in
Georgetown, Texas. The decision to cease operations was due primarily to
excessive manufacturing costs as well as to soft local market conditions. A
portion of the plant and equipment will be deployed at the Company's other
mining operations with the remainder to be sold. The amount written off during
the second quarter of Fiscal 2003 from the closing was $2.6 million. Fiscal 2003
Aggregates sales volume of 4,159,000 tons was 3% below Fiscal 2002 due to a
partial year of sales volume in Fiscal 2003 from the Georgetown operation. The
average net sales price of $4.51 per ton for Fiscal 2003 was 4% higher than
Fiscal 2002 due to the combination of less lower-priced Georgetown sales volume
and higher sales prices at all other locations. Cost of sales (excluding
Georgetown closure costs) increased 7% to $3.88 per ton in Fiscal 2003 due
mostly to excessive Georgetown production cost prior to its closing.
OTHER INCOME. Fiscal 2003 other income of $2.9 million compares to a
$0.4 million loss in Fiscal 2002. Included in the Fiscal 2002 loss is $0.6
million from recycled center losses and $0.6 million of expenses related to the
early retirement of subordinated debt. Other income consists of a variety of
items that are non-segment operating in nature and includes clinker sales
income, non-inventoried aggregates income, gypsum wallboard distribution center
income, recycled fiber collection centers losses, trucking income, asset sales
and other miscellaneous income and cost items.
NET INTEREST EXPENSE. Net interest expense of $9.6 million in Fiscal
2003 declined from $13.7 million in Fiscal 2002 due to declining debt balances
and lower borrowing costs. Included in last fiscal year's net interest expense
is $2.5 million of interest income relating to a note receivable that was
collected during Fiscal 2002's third quarter. Included in Fiscal 2003's net
interest expense is $0.9 million of cost associated with the early termination
of one of the Company's interest rate swap agreements and the partial
termination of the remaining interest rate swap agreement.
INCOME TAXES. The effective tax rate for Fiscal 2003 and 2002 was
33.5%.
FISCAL YEAR 2002 COMPARED TO FISCAL YEAR 2001
OVERVIEW. Fiscal year 2002 marked the first full fiscal year of operating
results from the Strategic Assets purchased in November 2000. The acquisition
was accounted for under the purchase method of accounting. The principal assets
acquired were a gypsum wallboard plant and a lightweight recycled paper mill.
Demand in the Company's two principal business segments, Cement and
Gypsum Wallboard, was at and near all-time highs, respectively, in Calendar
2001. Although the Company reported record Gypsum Wallboard shipments, sales
volume at each of the Company's three heritage Gypsum Wallboard plants was down
from the prior year due to "over capacity" in the gypsum wallboard industry.
This imbalance also negatively impacted gypsum wallboard pricing early in the
fiscal year. During the middle of Fiscal 2002, the Company implemented price
increases that held for the remainder of the fiscal year, and at fiscal year
end, the Company implemented an additional 15% price increase. Longer term, the
level of wallboard demand and prices will be determined by the strength of the
housing market and wallboard industry utilization levels. The Austin, Texas
economy, which is the Company's primary Concrete and Aggregates market, is being
affected by weakening economic conditions, and as a result, Concrete demand was
negatively impacted. Aggregates and Concrete demand is characterized by a high
level of dependence on public (infrastructure) spending. Funding for highway
construction projects has been and continues at a high level, and as a result,
Aggregates and Concrete demand remains strong.
CONSOLIDATED RESULTS. Consolidated net revenues for Fiscal 2002 totaled
$471.1 million, up 7% from $441.1 million for Fiscal 2001. Increased sales
volume in all segments, except Concrete, and higher net sales prices, except for
Gypsum Wallboard, resulted in the revenue gain. Operating earnings of $73.3
million in Fiscal 2002 were down 23% from last fiscal year mainly due to a $22.5
million decline in Gypsum Wallboard operating earnings. Net interest expense of
$13.7 million in Fiscal 2002 increased $11.3 million over Fiscal 2001 due to a
full year of debt outstanding in Fiscal 2002. As a result of the foregoing,
pre-tax earnings of $59.7 million were 35% below Fiscal 2001 pre-tax earnings of
$92.3 million. The Fiscal 2002 effective tax rate of 33.5% resulted in Fiscal
2002 net earnings of $39.7 million, a 33% decline from $59.4 million in Fiscal
2001. Diluted earnings per share in Fiscal 2002 of $2.15 were 33% lower than the
$3.22 for Fiscal 2001.
Centex Construction Products, Inc. and Subsidiaries 29
The following table compares sales volume, average unit sales prices
and unit operating margins for the Company's segments:
SALES VOLUME AVERAGE NET
(THOUSANDS) SALES PRICE (1) OPERATING MARGIN
---------------- -------------------- --------------------
2002 2001 2002 2001 2002 2001
----- ----- ------- ------- ------- -------
CEMENT (TON) 2,441 2,387 $ 67.69 $ 67.65 $ 24.66 $ 24.98
GYPSUM WALLBOARD (MSF) 1,930 1,584 $ 72.97 $ 91.12 $ 2.41 $ 17.11
PAPERBOARD (TON) 210 80 $398.13 $386.32 $ 47.49 $ 17.04
CONCRETE (CUBIC YARD) 673 808 $ 55.93 $ 53.70 $ 3.71 $ 7.38
AGGREGATES (TON) 4,265 4,009 $ 4.33 $ 4.16 $ 0.45 $ 0.40
(1) As historically reported. Does not include freight and delivery costs billed
to customers.
CEMENT. Cement revenues for Fiscal 2002 were $183.2 million, up 2% from
$178.8 million for the prior fiscal year due to increased sales volume.
Operating earnings of $60.2 million, an all-time-high, increased 1% from $59.6
million in Fiscal 2001 due to a 2% increase in sales volume being partially
offset by a 1% decline in operating margins. Cement sales volume of 2.44 million
tons, also an all-time-high, was 54,000 tons higher than Fiscal 2001 sales
volume. Favorable weather conditions and record U.S. cement consumption
contributed to the sales volume gain. All plants experienced sales volume gains
and again operated at their capacity and were "sold out." The Company
supplemented its Fiscal 2002 manufactured cement sales volume with 257,000 tons
of purchased cement, up 99,000 tons from last fiscal year. Fueled by strong
infrastructure spending, calendar 2001 U.S. total cement consumption of 123.8
million short tons was 3% above calendar 2000 consumption. Cement imports of
28.4 million short tons in calendar 2001 were 10% below prior year's cement
imports. The Fiscal 2002 average net sales price of $67.69 per ton was level
with Fiscal 2001 as lower pricing in the Illinois and Texas markets was offset
by higher pricing in the Company's western markets. Operating margin of $24.66
per ton decreased $0.32 per ton from Fiscal 2001 due to higher power, fuel and
maintenance costs and the cost impact from the 63% increase in higher cost
purchased cement sales volume.
GYPSUM WALLBOARD. Fiscal 2002 Gypsum Wallboard revenues of $183.5
million decreased 2% from Fiscal 2001 revenues. Lower average sales prices,
partially offset by increased sales volume, resulted in the revenue decline.
Operating earnings totaled $4.6 million in Fiscal 2002, down 83% from $27.1
million in Fiscal 2001. Increased sales volume offset by an 86% decrease in
operating margins, due primarily to lower pricing, resulted in the earnings
decline. Sales volume of 1,930 million square feet ("MMSF") in Fiscal 2002
increased 22% from Fiscal 2001 sales volume. Fiscal 2002 sales volume gain
resulted from a full year of sales from the Oklahoma wallboard plant that was
acquired during the middle of Fiscal 2001's third quarter, partially offset by
reduced shipments at each of the Company's heritage wallboard plants. The
Company's wallboard plants ran at approximately 70% of combined annual capacity
during Fiscal 2002 compared to 82% last fiscal year. The Company's plants were
operating at less than full capacity. Excess production capacity continues to
negatively impact industry utilization rates. U.S. wallboard consumption was
30.2 billion square feet in calendar 2001, the second highest level on record.
Gypsum Wallboard's Fiscal 2002 average net sales price of $72.97 per thousand
square feet ("MSF") declined 20% from Fiscal 2001's net sales price. Pricing
declined during the first part of Fiscal 2002 until the Company successfully
implemented price increases late in Fiscal 2002's second quarter. Pricing held
during the remainder of Fiscal 2002, and at fiscal year end, the Company
implemented an additional 15% price increase. Operating margin of $2.41 per MSF
declined 86% from Fiscal 2001's $17.11 per MSF operating margin. The operating
margin decline resulted from lower sales prices, partially offset by a $3.45 per
MSF decrease in cost of sales. Fiscal 2002 cost of sales of $70.56 per MSF
decreased 5% from last fiscal year's cost of sales due to reduced energy costs
and the impact from lower Duke production cost, partially offset by the impact
on fixed costs from decreased production volume at the Company's heritage
wallboard plants.
PAPERBOARD. Paperboard reported Fiscal 2002 revenues and operating
earnings of $84.3 million and $10.0 million, respectively, compared to revenues
of $31.5 million and operating earnings of $1.4 million in Fiscal 2001. The
Paperboard
30 Centex Construction Products, Inc. and Subsidiaries
operations were acquired during the third quarter of Fiscal 2001. Fiscal 2002
revenues of $84.3 million increased 168% from Fiscal 2001 due to a full year of
sales volume and higher net pricing. Fiscal 2002 sales volume of 210,000 tons
was 162% greater than the prior year's sales volume. Approximately 32% of Fiscal
2002 sales volume was sales to the Company's gypsum wallboard plants. The
average net sales price of $398.13 per ton increased 3% from Fiscal 2001's net
sales price. Fiscal 2002's net sales price was favorably impacted by the smaller
percentage of lower-priced non-gypsum paper sales volume to total sales volume.
Operating earnings of $10.0 million for Fiscal 2002 increased 629% from Fiscal
2001 due to increased sales volume and higher operating margins. Operating
earnings were negatively impacted early in Fiscal 2002 by costs associated with
closing the Denver mill on April 23, 2001. The Denver mill's production
requirements were transferred to the Lawton, Oklahoma mill. The Denver mill
reported a $2.3 million loss for Fiscal 2002. Cost of sales of $350.64 per ton
for Fiscal 2002 declined 5% from Fiscal 2001's cost of sales. Reduced energy
costs and improved operating efficiencies were major contributors to the cost of
sales reduction. Excluding the Denver mill results, Fiscal 2002's cost of sales
would have been $339.22 per ton. The Lawton mill is now capable of running at
its designed capacity of 220,000 tons annually. The recycled paper centers were
sold after Fiscal 2002's year end. Fiscal 2002 recycled paper center operating
losses of $0.6 million are reported in other income.
CONCRETE AND AGGREGATES. Revenues from Concrete and Aggregates were
$57.6 million in Fiscal 2002, down 6% from $61.1 million in Fiscal 2001. The
revenue decline resulted from decreased Concrete sales volume, partially offset
by higher Concrete and Aggregates sales prices and increased Aggregates sales
volume. The Austin, Texas market, which is the Company's largest Concrete and
Aggregates market, has enjoyed exemplary growth over the past decade. However,
in Fiscal 2002, Austin was negatively impacted by the troubles of the technology
companies. Fiscal 2002 operating earnings of $4.4 million declined 42% from $7.6
million in Fiscal 2001. Decreased Concrete sales volume and operating margins,
partially offset by increased Aggregates sales volume and operating margins,
resulted in the earnings decline. Concrete operating earnings of $2.5 million
for Fiscal 2002 were 58% below Fiscal 2001 operating earnings. Concrete sales
volume of 673,000 cubic yards in Fiscal 2002 declined 17% from Fiscal 2001 due
to decreased demand in the Austin, Texas market. Concrete's Fiscal 2002 net
sales price of $55.93 per cubic yard was 4% higher than the $53.70 per cubic
yard in Fiscal 2001. The net sales price gain resulted mainly from higher prices
in the California market. The Austin, Texas market experienced some price
weakening late in Fiscal 2002. Cost of sales of $52.22 per cubic yard in Fiscal
2002 increased 13% from Fiscal 2001 due to higher materials and operating costs.
Aggregates Fiscal 2002 operating earnings of $1.9 million increased 20% from
$1.6 million in Fiscal 2001 as a result of increased sales volume and higher
operating margins. Fiscal 2002 Aggregates sales volume of 4,265,000 tons was 6%
greater than Fiscal 2001 due to 223,000 tons of additional sales volume from the
Texas operations. The Georgetown Aggregates plant expansion was completed
mid-Fiscal 2002 and by fiscal year-end was producing commercial aggregates
products. The average net sales price of $4.33 per ton for Fiscal 2002 was 4%
higher than $4.16 per ton in Fiscal 2001. Cost of sales of $3.88 per ton in
Fiscal 2002 increased 3% from Fiscal 2001 due to increased production costs at
the Texas operations.
NET INTEREST EXPENSE. Net interest expense of $13.7 million in Fiscal
2002 was $11.3 million greater than the $2.4 million in Fiscal 2001 due to a
full year of debt outstanding in Fiscal 2002. On November 10, 2000, the Company
utilized $150.0 million of cash on hand and incurred $280.0 million of new debt
to complete the acquisition of the Strategic Assets. The increase in net
interest expense was somewhat mitigated by declining interest rates on the
Company's variable rate debt.
OTHER INCOME. Fiscal 2002 other income recorded a $0.4 million loss
compared to a $3.7 million profit in Fiscal 2001. Included in the Fiscal 2002
loss is $0.6 million of recycled center losses, $0.6 million of expenses related
to the early retirement of subordinated debt and $0.4 million less distribution
center income. Included in Fiscal 2001 results is a $1.9 million gain on the
disposition of investment securities owned by the Company. Other income consists
of a variety of items that are non-segment operating in nature and includes
clinker sales income, non-inventoried aggregates income, gypsum wallboard
distribution center income, recycled waste paper earnings, trucking income,
asset sales and other miscellaneous income and cost items.
CRITICAL ACCOUNTING POLICIES
Certain of the Company's critical accounting policies require the use of
judgment in their application or require estimates of inherently uncertain
matters. Although the Company's accounting policies are in compliance with
generally accepted accounting principles, a change in the facts and
circumstances of the underlying transactions could significantly change
Centex Construction Products, Inc. and Subsidiaries 31
the application of the accounting policies and the resulting financial statement
impact. Listed below are those policies that the Company believes are critical
and require the use of complex judgment in their application.
IMPAIRMENT OF LONG-LIVED ASSETS. The Company assesses long-lived assets
in accordance with the provisions of Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
No. 144 requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets is measured by comparing the
carrying amount of an asset to future undiscounted net cash flows expected to be
generated by the asset. These evaluations for impairment are significantly
impacted by estimates of revenues, costs and expenses and other factors. If
these assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets.
GOODWILL. The Company early adopted the provisions of SFAS No. 142,
"Goodwill and Other Intangible Assets." Upon the adoption of SFAS No. 142,
goodwill is no longer subject to amortization. Rather, goodwill will be subject
to at least an annual assessment for impairment by applying a fair-value-based
test. If the carrying amounts exceed the fair value, an impairment has occurred.
The Company continually evaluates whether events and circumstances have occurred
that indicate the remaining balance of goodwill may not be recoverable. In
evaluating impairment, the Company estimates the sum of the expected future cash
flows derived from such goodwill over its remaining life. Similar to the review
for impairment of other long-lived assets, evaluations for impairment are
significantly impacted by estimates of future prices for the Company's products,
capital needs, economic trends and other factors.
ENVIRONMENTAL LIABILITIES. The Company's operations are subject to
state, federal and local environmental laws and regulations, which impose
liability for cleanup or remediation of environmental pollution and hazardous
waste arising from past acts; and require pollution control and prevention, site
restoration and operating permits and/or approvals to conduct certain of its
operations. The Company records environmental accruals when it is probable that
a reasonably estimable liability has been incurred. Environmental remediation
accruals are based on internal studies and estimates, including shared financial
liability with third parties. Environmental expenditures that extend the life,
increase the capacity, improve the safety or efficiency of assets or mitigate or
prevent future environmental contamination may be capitalized. Other
environmental costs are expensed when incurred.
VALUATION OF ACCOUNTS RECEIVABLE. The Company evaluates the
collectibility of accounts receivable based on a combination of factors. In
circumstances when the Company is aware of a specific customer's inability to
meet its financial obligation to the Company, the balance in the reserve for
doubtful accounts is evaluated, and if determined to be deficient, a specific
amount will be added to the reserve. For all other customers, the reserve for
doubtful accounts is determined by the length of time the receivables are past
due or the status of the customer's financial condition.
LIQUIDITY AND CAPITAL RESOURCES
On November 10, 2000, the Company's $35.0 million unsecured revolving credit
facility used to finance its working capital and capital expenditures
requirements was cancelled and replaced with a new $325.0 million senior
revolving credit facility. During the quarter ended June 30, 2001, pursuant to
an Amended and Restated Credit Agreement, the credit facility was amended to
reduce the facility amount from $325.0 million to $275.0 million and to modify
certain financial and other covenants (the "Amended Credit Facility"). During
the quarter ended September 30, 2002, the Company again reduced the Amended
Credit Facility amount from $275.0 million to $175.0 million. On March 25, 2003,
pursuant to the Second Amended and Restated Credit Agreement, the Amended Credit
Facility was amended to reduce the facility amount from $175.0 million to $155.0
million, modify certain financial and other covenants and extend the maturity
date three years (the "New Credit Facility"). The principal balance of the New
Credit Facility matures on March 25, 2006. At March 31, 2003 and 2002, the
Company had $55.0 million outstanding under the New Credit Facility and $163.0
million outstanding under the Amended Credit Facility, respectively. The
borrowings under the New Credit Facility are guaranteed by all major operating
subsidiaries of the Company. At the option of the Company, outstanding principal
amounts on the New Credit Facility bear interest at a variable rate equal to:
(i) LIBOR, plus an agreed margin (ranging from 100 to 200 basis points), which
is to be established quarterly based upon the Company's ratio of EBITDA to total
funded debt; or (ii) an alternate base rate which is the higher of (a) the prime
rate or (b) the federal funds rate plus 1/2% per annum, plus an agreed margin
(ranging from 0 to 100 basis points). Interest payments are payable monthly or
at the end of the LIBOR advance periods, which can be up to a period of six
months at the option of the Company. Under
32 Centex Construction Products, Inc. and Subsidiaries
the New Credit Facility, the Company is required to adhere to a number of
financial and other covenants, including covenants relating to the Company's
interest coverage ratio, consolidated funded indebtedness ratio and minimum
tangible net worth. The Company had $91.2 million and $105.8 million of
borrowings available at March 31, 2003 and 2002, respectively.
Also, on November 10, 2000, a subsidiary of the Company (the "Debtor
Subsidiary") assumed $100.0 million of 9.5% senior subordinated notes (the
"Notes") with a maturity date of July 15, 2008. Interest payments on the Notes
are due on January 15 and July 15. The Notes are redeemable at the option of the
Debtor Subsidiary, in whole or in part, at any time after July 15, 2003. Upon
the acquisition of certain strategic assets on November 10, 2000, the Debtor
Subsidiary was required to commence a tender offer for the Notes at 101%. On
December 20, 2000, $90.0 million in principal amount of the Notes was tendered,
leaving $10.0 million outstanding. During the June 30, 2001 quarter, the Debtor
Subsidiary commenced another tender offer for the Notes at 108.75%. On June 28,
2001, the Debtor Subsidiary purchased $9.5 million in principal amount of the
Notes, leaving $0.5 million outstanding. Prior to the commencement of the second
tender offer, the Debtor Subsidiary obtained the necessary consents from a
majority of holders of the Notes to eliminate certain covenants and reporting
requirements.
On June 29, 2001, the Company entered into a $50.0 million trade
receivables securitization facility (the "Receivables Securitization Facility"),
which is funded through the issuance of commercial paper and backed by a 364-day
committed bank liquidity arrangement. The Receivables Securitization Facility
has a termination date of June 10, 2004, subject to a 364-day bank commitment
that was renewed on June 28, 2002 for another 364-day period terminating on June
28, 2003. The purpose of the Receivables Securitization Facility is to obtain
financing at a lower interest rate by pledging accounts receivable. The
Receivables Securitization Facility is fully consolidated on the balance sheet.
Subsidiary company receivables are sold on a revolving basis first to the
Company and then to a wholly owned special purpose bankruptcy remote entity of
the Company. This entity pledges the receivables as security for advances under
the facility. The borrowed funds are used to pay down borrowings under the New
Credit Facility. Outstanding principal amounts under the Receivables
Securitization Facility bear interest at the commercial paper rate plus a
facility fee. Under the Receivables Securitization Facility, the Company is
required to adhere to certain financial and other covenants that are similar to
those in the New Credit Facility. The Company had $25.3 million and $18.6
million outstanding under the Receivables Securitization Facility at March 31,
2003 and 2002, respectively.
The Company funds the growth of its business through the combination of
cash flow from operations, advances under the receivables securitization program
and bank borrowings. Liquidity is not currently dependent on the use of
off-balance sheet transactions other than normal operating leases. The Company
believes that cash on hand, cash provided by operations and funds available
under the Receivables Securitization Facility and the New Credit Facility should
be sufficient to cover working capital needs, capital expenditures and debt
service requirements for the next twelve months.
Other than the Receivables Securitization Facility and the New Credit
Facility, the Company has no other financing alternatives in place. In the event
the Receivables Securitization Facility is terminated, funds should be available
under the New Credit Facility to repay borrowings. However, if the New Credit
Facility is terminated, no assurance can be given as to the Company's ability to
secure a new source of financing. Consequently, if a balance is outstanding on
the New Credit Facility at the time of termination, and an alternative source of
financing cannot be secured, it would have a material adverse impact on the
Company.
The Company uses interest rate swaps to mitigate interest rate risk
associated with its variable rate debt. On July 19, 2001, the Company entered
into two interest rate swap agreements which have the effect of converting a
total notional amount of $100.0 million of the Company's debt from a variable
rate of interest to a fixed rate of interest. The Company receives three month
LIBOR and pays a fixed rate of interest under these agreements. These agreements
expire on August 28, 2003. On November 22, 2002, the Company terminated one of
its interest rate swap agreements with a notional amount of $25.0 million. On
February 28, 2003, the Company terminated $20.0 million of the remaining $75.0
million interest rate swap agreement. At March 31, 2003, the Company recorded a
cumulative net after-tax loss of $0.6 million to Accumulated Other Comprehensive
Losses for the change in fair value of the remaining swap agreement.
Centex Construction Products, Inc. and Subsidiaries 33
The Company does not have any off balance sheet debt, except for
operating leases (see Note F). Other than the Receivables Securitization
Facility, the Company does not have any other transactions, arrangements or
relationships with "special purpose" entities. Also, the Company has no
outstanding debt guarantees. The Company has available under the New Credit
Facility a $50.0 million Letter of Credit Facility. At March 31, 2003, the
Company had $8.8 million of letters of credit outstanding that renew annually.
Also, the Company is contingently liable for performance under $3.2 million in
performance bonds relating primarily to its mining operations.
Based on its financial condition at March 31, 2003, the Company
believes that its internally generated cash flow coupled with funds available
under various credit facilities will enable it to provide adequately for its
current operations and future growth. The Company was in compliance at March 31,
2003 and during the twelve months ended March 31, 2003 with all the terms and
covenants of its credit agreements.
Working capital at March 31, 2003 was $28.2 million compared to $26.5
million at March 31, 2002. The increase resulted from a $2.2 million increase in
cash and a $8.5 million decline in accounts payable and accrued liabilities,
partially offset by a $6.6 million increase in note payable and a $2.4 million
decrease in accounts and notes receivable and inventories.
Cash and cash equivalents increased $2.2 million from March 31, 2002 to
$13.6 million at March 31, 2003. The net cash provided by or used in the
operating, investing, and financing activities for the fiscal years ended March
31, 2003 and 2002 is summarized below:
FOR THE YEARS ENDED MARCH 31,
-----------------------------
2003 2002
--------- ---------
(dollars in thousands)
NET CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES $ 120,663 $ 120,643
INVESTING ACTIVITIES (10,876) (18,169)
FINANCING ACTIVITIES (107,591) (99,818)
--------- ---------
NET INCREASE IN CASH $ 2,196 $ 2,656
========= =========
Cash provided by operating activities of $120.7 million for Fiscal 2003
was level with last fiscal year. A $17.9 million increase in net earnings and a
$8.5 million increase in deferred tax liability and depreciation was offset by a
$29.5 million decrease in net working capital. The majority of the working
capital decline was due to the collection in Fiscal 2002 of a $24.3 million note
receivable. Cash used for investing activities of $10.9 million declined $7.3
million compared to last fiscal year due to the combination of a $2.6 million
increase in asset sale proceeds and a $4.7 million decrease in capital
expenditures. Cash used in financing activities for this fiscal year of $107.6
million increased $7.8 million over last fiscal year due to an additional $5.0
million net reduction in total debt and $8.1 million in stock repurchases,
partially offset by a $5.4 million increase in net proceeds from stock option
exercises.
During Fiscal 2003 total debt was reduced by $101.5 million from $182.4
million at March 31, 2002 to $80.9 million at March 31, 2003.
Debt-to-Capitalization at March 31, 2003 was 14.4%, down from 29.9% at March 31,
2002.
In Fiscal 2003, the Company utilized its regular and alternative
minimum tax carryovers from Fiscal 2002. Remaining net operating loss carryovers
available for Fiscal 2003 amount to $34.6 million and $4.0 million for regular
and alternative minimum tax, respectively. The net operating loss carryovers, if
unused, will expire after Fiscal 2022.
OTHER DEVELOPMENTS
On September 3, 2002, the Company announced the closing of its aggregates quarry
and crushing plant in Georgetown, Texas, north of Austin. The decision to cease
operations at the Georgetown plant was due primarily to excessive manufacturing
costs as well as to soft local market conditions. A portion of the plant and
equipment will be deployed to the Company's other mining operations. The unused
portion of the plant and equipment will be sold.
On March 31, 2003, the Company's President and Chief Executive Officer,
Richard D. Jones, Jr., retired. He also resigned from the Company's Board of
Directors. Laurence E. Hirsch assumed Mr. Jones' responsibilities and became its
Chief Executive Officer. Mr. Hirsch has been the Company's Chairman since the
Company became publicly held in 1994. Mr. Hirsch is also Chairman and Chief
Executive Officer of the Company's majority owner, Centex Corporation, and has
extensive experience in the construction products business.
34 Centex Construction Products, Inc. and Subsidiaries
STOCK REPURCHASE PROGRAM
The Company's Board of Directors has approved the repurchase of a cumulative
total of 6,101,430 shares of the Company's stock since the Company became
publicly held in April 1994. The Company repurchased 223,384 shares at a cost of
$8.1 million in Fiscal 2003 and no shares in Fiscal 2002. At March 31, 2003,
Centex Corporation owned approximately 65.1% of the outstanding shares of the
Company's common stock. At March 31, 2003, there are approximately 519,900
shares remaining under the Company's current repurchase authorization.
PURCHASE OF STRATEGIC ASSETS
On November 10, 2000, the Company acquired selected strategic assets. The
purchase price was $342.2 million cash plus the assumption by a subsidiary of
$100.0 million of subordinated debt. Funding came from cash on hand and
borrowings under a new $325.0 million senior credit facility entered into during
November 2000 (reduced to the current $155.0 million level).
The principal strategic assets acquired were: a 1.1 billion square foot
gypsum wallboard plant located at Duke, Oklahoma; a short line railroad and
railcars linking the Duke plant to adjacent railroads; and a 220,000
ton-per-year lightweight recycled paperboard mill in Lawton, Oklahoma. The
gypsum wallboard plant is operated by the Company's American Gypsum Company,
located in Albuquerque, New Mexico. The paperboard operation is located in
Lawton, Oklahoma and focuses primarily on the gypsum wallboard paper business.
INFLATION AND CHANGING PRICES
Inflation has become less of a factor in the U.S. economy as the rate of
increase has moderated during the last several years. The Consumer Price Index
rose approximately 2.4% in calendar 2002, 1.6% in 2001, and 3.4% in 2000. Prices
of materials and services, with the exception of power and natural gas, have
remained relatively stable over the three-year period. Strict cost control and
improving productivity also minimize the impact of inflation. The ability to
recover increasing costs by obtaining higher sales prices varies with the level
of activity in the construction industry, the number, size, and strength of
competitors and the availability of products to supply a local market.
GENERAL OUTLOOK
Despite decreased cement consumption and eroding wallboard prices during Fiscal
2003, the outlook for Fiscal 2004 is favorable with cement and wallboard
consumption forecasted to remain at relatively high levels. Cement prices are
currently stable and a wallboard price increase has been implemented in early
May, 2003. In addition, the profitability of CXP's paperboard operations
continues to steadily increase as operating efficiencies continue to improve.
Fiscal 2004 interest expense is expected to decline significantly as the Company
continues to reduce debt. Like many other companies, CXP is experiencing cost
pressures in areas such as natural gas and raw materials. Assuming prices and
demand remain at current levels for CXP's products, along with the expected
decline in interest expense, the Company expects to report higher earnings for
Fiscal 2004 than it did for Fiscal 2003.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations," which is effective for fiscal
years beginning after June 15, 2002. SFAS No. 143 requires legal obligations
associated with the retirement of long-lived assets to be recognized at their
fair value at the time that the obligations are incurred. Upon initial
recognition of a liability, that cost should be capitalized as part of the
related long-lived asset and allocated to expense over the useful life of the
asset. The Company will adopt SFAS No. 143 in the first quarter of Fiscal 2004,
and, based on current circumstances, does not believe that the impact of
adoption of SFAS No. 143 will have a material impact on the Company's financial
position or results of operations.
In July 2002, the Financial Accounting Standards Board issued SFAS No.
146 "Accounting for Costs Associated with Exit or Disposal Activities." This
statement addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The principal
difference between SFAS No. 146 and EITF Issue No. 94-3 relates to SFAS No.
146's requirements for recognition of a liability for a cost associated with an
exit or disposal activity. SFAS No. 146 requires that a liability for a cost
associated with an exit
Centex Construction Products, Inc. and Subsidiaries 35
or disposal activity be recognized when the liability is incurred. Under EITF
Issue No. 94-3, a liability for an exit cost was recognized at the date an
entity committed to an exit plan. The provisions of this Statement are effective
for exit or disposal activities that are initiated after December 31, 2002. The
adoption of this standard is not expected to have a material impact on the
consolidated financial statements of the Company.
In November 2002, the Financial Accounting Standards Board issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").
FIN 45 requires a guarantor to recognize a liability for the fair value of the
obligation at the inception of the guarantee. The disclosure requirements of FIN
45, which are already effective, are disclosed in Note F - "Commitments and
Contingencies," while the recognition provisions will be applied on a
prospective basis to guarantees issued after December 31, 2002. The Company does
not expect the adoption of FIN 45 to have a material effect on its consolidated
financial statements.
In January 2003, the Financial Accounting Standard Board issued
Interpretation No. 46, "Consolidation of Variable Interest Entities," clarifying
the application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements" ("FIN 46"), to certain entities in which equity investors do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The provisions of
FIN 46 are applicable no later than July 1, 2003. The Company is currently
evaluating the impact of FIN 46 on its consolidated financial statements.
In December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 provides for expanded
disclosure concerning stock-based compensation, including disclosures in interim
financial statements, and amends SFAS No. 123. SFAS No. 148's transition
guidance and provisions for annual disclosures are effective for fiscal years
ended after December 15, 2002. As of March 31, 2003, the Company adopted the
disclosure requirements of SFAS No. 148.
FORWARD-LOOKING STATEMENTS
Certain sections of this Management's Discussion and Analysis of Results of
Operations and Financial Condition contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, Section 21E of the
Securities Exchange Act of 1934 and the Private Litigation Reform Act of 1995.
Forward-looking statements may be identified by the context of the statement and
generally arise when the Company is discussing its beliefs, estimates or
expectations. These statements involve known and unknown risks and uncertainties
that may cause the Company's actual results to be materially different from
planned or expected results. Those risks and uncertainties include, but are not
limited to:
- - levels of construction spending in major markets - unfavorable weather conditions during peak construction
periods
- - supply/demand structure of cement and wallboard - changes in and implementation of environmental and other
industries governmental regulations
- - significant changes in the cost of fuel, energy and
other raw materials
- the ability to successfully identify, complete and
- - availability of raw materials efficiently integrate acquisitions
- - the cyclical nature of our business - the ability to successfully penetrate new markets
- - national and regional economic conditions - international events that may disrupt the world economy
- - interest rates - unexpected operation difficulties
- - seasonality of our operations - competition from new or existing competitors
In general, the Company is subject to the risks and uncertainties of
the construction industry and of doing business in the U.S. The forward-looking
statements are made as of the date of this report, and the Company undertakes no
obligation to update them, whether as a result of new information, future events
or otherwise.
36 Centex Construction Products, Inc. and Subsidiaries
SUMMARY OF SELECTED FINANCIAL DATA
(dollars in thousands, except per share data) (unaudited)
-----------------------------------------------
2003 2002 2001
----------- ----------- -----------
REVENUES(1) $501,257 $471,083 $441,127
NET EARNINGS $ 57,606 $ 39,706 $ 59,429
TOTAL ASSETS $712,078 $743,352 $794,622
TOTAL LONG-TERM DEBT $ 55,670 $163,750 $278,828
TOTAL DEBT $ 80,927 $182,380 $278,828
DEFERRED INCOME TAXES $ 80,461 $ 53,781 $ 33,363
STOCKHOLDERS' EQUITY $479,832 $427,832 $392,320
TOTAL DEBT AS A PERCENT OF TOTAL CAPITALIZATION
(TOTAL DEBT AND STOCKHOLDERS' EQUITY) 14.4% 29.9% 41.5%
NET EARNINGS AS A PERCENT OF BEGINNING STOCKHOLDERS' EQUITY 13.5% 10.1% 17.5%
PER COMMON SHARE
DILUTED NET EARNINGS(2) $ 3.11 $ 2.15 $ 3.22
CASH DIVIDENDS(3) $ 0.20 $ 0.20 $ 0.20
BOOK VALUE BASED ON SHARES OUTSTANDING AT YEAR END(2) $ 26.10 $ 23.30 $ 21.40
STOCK PRICES
HIGH $ 45.25 $ 39.90 $ 33.50
LOW $ 31.25 $ 25.70 $ 21.75
(1) The Company adopted the provisions of Emerging Issues Task Force Issue No.
00-10, "Accounting for Shipping and Handling Fees and Costs," during fiscal year
2001. As a result of this adoption, net revenues have been restated to include
freight and delivery costs billed to customers. Previously such billings were
offset against corresponding expenses in cost of sales.
(2) Prior to April 1994, CXP was a wholly owned subsidiary of Centex Corporation
and accordingly did not report per share information. To facilitate comparisons
between periods, per share data for 1994 has been presented using the 23,000,000
shares outstanding immediately after the Initial Public Offering.
(3) Declared initial quarterly cash dividend of five cents per share on March
12, 1996.
Centex Construction Products, Inc. and Subsidiaries 37
FOR THE YEARS ENDED MARCH 31,
--------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
$470,465 $381,900 $344,264 $278,144 $258,637 $222,672 $193,038
$108,232 $ 77,289 $ 56,533 $ 41,799 $ 33,944 $ 21,820 $ 10,240
$438,139 $364,683 $351,112 $305,637 $269,575 $250,103 $257,315
$ 400 $ 480 $ 560 $ 640 $ 720 $ 24,500 $ 15,585
$ 400 $ 480 $ 560 $ 2,640 $ 720 $ 24,500 $ 16,200
$ 24,360 $ 25,158 $ 22,250 $ 18,835 $ 14,344 $ 6,705 $ 37,925
$340,472 $279,920 $274,803 $239,436 $216,462 $183,405 $170,839
0.1% 0.2% 0.2% 1.1% 0.3% 11.8% 8.7%
38.7% 28.1% 23.6% 19.3% 18.5% 12.8% 6.4%
$ 5.63 $ 3.71 $ 2.56 $ 1.89 $ 1.47 $ 0.95 $ 0.45
$ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.05 -- --
$ 18.33 $ 14.18 $ 12.77 $ 10.89 $ 9.42 $ 7.99 $ 7.43
$ 41.81 $ 45.13 $ 39.00 $ 20.00 $ 15.50 $ 14.38 --
$ 22.63 $ 31.25 $ 18.00 $ 12.50 $ 11.38 $ 8.88 --
38 Centex Construction Products, Inc. and Subsidiaries
QUARTERLY RESULTS
(dollars in thousands, except per share data) (unaudited)
2003 2002
-------- --------
FIRST QUARTER
REVENUES $128,775 $117,423
EARNINGS BEFORE INCOME TAXES $ 25,161 $ 8,142
NET EARNINGS $ 16,735 $ 5,455
DILUTED EARNINGS PER SHARE $ 0.90 $ 0.30
SECOND QUARTER
REVENUES $135,993 $129,545
EARNINGS BEFORE INCOME TAXES $ 24,218 $ 17,921
NET EARNINGS $ 16,107 $ 11,880
DILUTED EARNINGS PER SHARE $ 0.87 $ 0.64
THIRD QUARTER
REVENUES $119,089 $112,750
EARNINGS BEFORE INCOME TAXES $ 23,122 $ 17,427
NET EARNINGS $ 15,378 $ 11,590
DILUTED EARNINGS PER SHARE $ 0.83 $ 0.63
FOURTH QUARTER
REVENUES $117,400 $111,365
EARNINGS BEFORE INCOME TAXES $ 14,112 $ 16,209
NET EARNINGS $ 9,386 $ 10,781
DILUTED EARNINGS PER SHARE $ 0.51 $ 0.58
Centex Construction Products, Inc. and Subsidiaries 39
BOARD OF CENTEX GEOFF W. GRAY MOUNTAIN CEMENT
DIRECTORS CONSTRUCTION Vice President COMPANY
PRODUCTS, INC.
ROBERT L. CLARKE (2, 3) KEITH W. METCALF BRUCE E. BALLINGER
Senior Partner, LAURENCE E. HIRSCH Vice President President
Bracewell & Patterson, L.L.P. Chairman and
Chief Executive Officer JOHN ARELLANO
TIMOTHY R. ELLER MARY SCHAFER Vice President
President and STEVEN R. ROWLEY Vice President
Chief Operating Officer, Executive Vice President NEVADA CEMENT
Centex Corporation and COMPANY
Chief Operating Officer CENTEX NICHOLAS STIREN
MATERIALS LLC President
LAURENCE E. HIRSCH (1) H.D. HOUSE JOHN R. BREMNER
Chairman and Executive Vice President- PHILIP BOWDEN Vice President
Chief Executive Officer, Gypsum/Paperboard President
Centex Corporation GARY J. ROMA
and Chairman and GERALD J. ESSL J. DAVID LOFTIS Vice President
Chief Executive Officer, Executive Vice President- Vice President
Centex Construction Cement and
Products, Inc. Concrete/Aggregates C. DOUGLAS WESTBROOK REPUBLIC
Vice President PAPERBOARD
COMPANY LLC
MICHAEL R. NICOLAIS (2,3) JAMES H. GRAASS
Managing Director, Executive Vice President, ILLINOIS CEMENT
Stephens Inc. General Counsel and COMPANY H.D. HOUSE
Secretary President
DAVID W. QUINN ARTHUR R. ZUNKER, JR. WAYNE W. EMMER
Former Vice Chairman, Senior Vice President- President
Centex Corporation Finance, Treasurer and TEXAS - LEHIGH
Chief Financial Officer CEMENT COMPANY L P
WILLIAM C. BOOR THOMAS F. CLARKE ROBERT KIDNEW
HAROLD K. WORK (2, 3) Senior Vice President- Vice President President
Former Chairman, Marketing and Strategic
Elcor Corporation Planning R. LEE HUNTER
Vice President
RODNEY E. CUMMICKEL FRANK P. KOEPPEL
Vice President Vice President
JASON L. GIBERT
(Numbers in parentheses HUBERT L. SMITH, JR. Vice President
indicate board committees) Vice President
WESTERN
AMERICAN MATHEWS AGGREGATES LLC
(1) Executive Committee GYPSUM COMPANY READY MIX LLC
JOE CHEVREAUX, JR.
H.D. HOUSE President
(2) Compensation and Stock President JOE CHEVREAUX, JR.
Option Committee President JAMES D. ELLIOTT
DAVID B. POWERS Vice President
(3) Audit Committee Executive Vice President- JAMES D. ELLIOTT
Marketing Vice President
KERRY G. GANNAWAY
Vice President
40 Centex Construction Products, Inc. and Subsidiaries
CORPORATE HEADQUARTERS
2728 N. Harwood, Suite 600
Dallas, Texas 75201-1516
(214) 981-5000 (Telephone)
(214) 981-6559 (Fax)
Mailing Address: P.O. Box 199000
Dallas, Texas 75219-9000
TRANSFER AGENT AND REGISTRAR
Mellon Investor Services LLC
85 Challenger Road
Overpeck Center
Ridgefield Park, NJ 07660
1-800-635-9270 (Toll-Free)
STOCK LISTINGS
New York Stock Exchange
Ticker Symbol "CXP"
ANNUAL MEETING
The Annual Meeting of Stockholders of Centex Construction Products, Inc. will be
held on Monday, July 21, 2003 at 10:00 a.m. on the 10th floor at its corporate
office, 2728 N. Harwood, Dallas, Texas.
STOCKHOLDER INQUIRIES
Communications concerning transfer requirements, lost certificates, dividends or
change of address should be sent to Mellon Investor Services LLC at the address
listed above.
FORM 10-K
A copy of the Annual Report on Form 10-K of Centex Construction Products, Inc.
is available upon request to the Senior Vice President-Finance at corporate
headquarters.
Centex Construction Products, Inc. and Subsidiaries 41
(CENTEX CONSTRUCTION PRODUCTS LOGO)