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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549



FORM 10-Q



---



(Mark One)



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended August 31, 2003



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from  to



Commission File Number 1-4887



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TEXAS INDUSTRIES, INC.

(Exact name of registrant as specified in the charter)



|Delaware                                                       |  | 75-0832210                       
|-------------------------------------------------------------- |  | ---------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)
|                                                               | 
|1341 West Mockingbird Lane, Suite 700W, Dallas, Texas          |  | 75247-6913                       
|(Address of principal executive offices)                       |  | (Zip Code)                       



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



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



Indicate by check mark
whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x  No ̈



As of October 10, 2003,
21,081,550 shares of Registrants Common Stock, $1.00 par value, were outstanding.



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INDEX



TEXAS INDUSTRIES, INC. AND
SUBSIDIARIES



|PART I. FINANCIAL INFORMATION |  | Page                                                                                                                  
|----------------------------- |  | ----------------------------------------------------------------------------------------------------------------------
|                              |  |                                                                                                                       
|Item 1.                       |  | Financial Statements                                                                                                  
|                              |  |                                                                                                                       
|                              |  | Consolidated Balance SheetsAugust 31, 2003 and May 31, 2003                                                          
|                              |  |                                                                                                                       
|                              |  | Consolidated Statements of Operationsthree months ended August 31, 2003 and August 31, 2002                          
|                              |  |                                                                                                                       
|                              |  | Consolidated Statements of Cash Flowsthree months ended August 31, 2003 and August 31, 2002                          
|                              |  |                                                                                                                       
|                              |  | Notes to Consolidated Financial Statements                                                                            
|                              |  |                                                                                                                       
|                              |  | Independent Accountants Review Report                                                                                
|                              |  |                                                                                                                       
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                 
|                              |  |                                                                                                                       
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Riskthe information required by this item is included in Item
2
|                              |  |                                                                                                                       
|Item 4.                       |  | Controls and Procedures                                                                                               
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                       
|                              |  |                                                                                                                       
|Item 1.                       |  | Legal Proceedings                                                                                                     
|                              |  |                                                                                                                       
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                                      
|                              | 
|SIGNATURES                    |  | 25                                                                                                                    



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CONSOLIDATED BALANCE SHEETS

TEXAS INDUSTRIES, INC. AND SUBSIDIARIES



|                                                                                                                          |  | (Unaudited) August 31, |           |   | May 31, |  
|------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | --------- | - | ------- | -
|                                                                                                                         
|In thousands                                                                                                              |  | 2003                   |           |   | 2003    |  
|                                                                                                                         
|ASSETS                                                                                                                    |  |                        |           |   |         |  
|CURRENT ASSETS                                                                                                            |  |                        |           |   |         |  
|Cash                                                                                                                      |  | $                      | 15,352    |   |         | $
|Receivablesnet                                                                                                           |  |                        | 180,218   |   |         |  
|Inventories                                                                                                               |  |                        | 255,787   |   |         |  
|Deferred taxes and prepaid expenses                                                                                       |  |                        | 38,506    |   |         |  
|                                                                                                                          |  |                        |           |   |         |  
|TOTAL CURRENT ASSETS                                                                                                      |  |                        | 489,863   |   |         |  
|                                                                                                                          |  |                       
|OTHER ASSETS                                                                                                              |  |                        |           |   |         |  
|Goodwill                                                                                                                  |  |                        | 146,474   |   |         |  
|Real estate and investments                                                                                               |  |                        | 46,277    |   |         |  
|Deferred charges and intangibles                                                                                          |  |                        | 35,807    |   |         |  
|                                                                                                                          |  |                        |           |   |         |  
|                                                                                                                          |  |                        | 228,558   |   |         |  
|                                                                                                                          |  |                       
|PROPERTY, PLANT AND EQUIPMENT                                                                                             |  |                        |           |   |         |  
|Land and land improvements                                                                                                |  |                        | 223,524   |   |         |  
|Buildings                                                                                                                 |  |                        | 101,938   |   |         |  
|Machinery and equipment                                                                                                   |  |                        | 1,718,314 |   |         |  
|Construction in progress                                                                                                  |  |                        | 43,648    |   |         |  
|                                                                                                                          |  |                        |           |   |         |  
|                                                                                                                          |  |                        | 2,087,424 |   |         |  
|Less allowances for depreciation                                                                                          |  |                        | 964,694   |   |         |  
|                                                                                                                          |  |                        |           |   |         |  
|                                                                                                                          |  |                        | 1,122,730 |   |         |  
|                                                                                                                          |  |                        |           |   |         |  
|                                                                                                                          |  | $                      | 1,841,151 |   |         | $
|                                                                                                                          |  |                        |           |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                      |  |                        |           |   |         |  
|CURRENT LIABILITIES                                                                                                       |  |                        |           |   |         |  
|Trade accounts payable                                                                                                    |  | $                      | 114,829   |   |         | $
|Accrued interest, wages and other items                                                                                   |  |                        | 58,357    |   |         |  
|Current portion of long-term debt                                                                                         |  |                        | 733       |   |         |  
|                                                                                                                          |  |                        |           |   |         |  
|TOTAL CURRENT LIABILITIES                                                                                                 |  |                        | 173,919   |   |         |  
|                                                                                                                          |  |                       
|LONG-TERM DEBT                                                                                                            |  |                        | 602,414   |   |         |  
|                                                                                                                          |  |                       
|DEFERRED INCOME TAXES AND OTHER CREDITS                                                                                   |  |                        | 154,574   |   |         |  
|                                                                                                                          |  |                       
|COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY HOLDING SOLELY COMPANY CONVERTIBLE
DEBENTURES |  |                        | 199,937   |   |         |  
|                                                                                                                          |  |                       
|SHAREHOLDERS EQUITY                                                                                                      |  |                        |           |   |         |  
|Common stock, $1 par value                                                                                                |  |                        | 25,067    |   |         |  
|Additional paid-in capital                                                                                                |  |                        | 260,735   |   |         |  
|Retained earnings                                                                                                         |  |                        | 521,298   |   |         |  
|Cost of common stock in treasury                                                                                          |  |                        | (90,901   | ) |         |  
|Pension liability adjustment                                                                                              |  |                        | (5,892    | ) |         |  
|                                                                                                                          |  |                        |           |   |         |  
|                                                                                                                          |  |                        | 710,307   |   |         |  
|                                                                                                                          |  |                        |           |   |         |  
|                                                                                                                          |  | $                      | 1,841,151 |   |         | $
|                                                                                                                          |  |                        |           |   |         |  



See
notes to consolidated financial statements.







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(Unaudited)

CONSOLIDATED STATEMENTS OF OPERATIONS

TEXAS INDUSTRIES, INC. AND SUBSIDIARIES



|                                                            |  | Three months ended August 31, |        
|----------------------------------------------------------- |  | ----------------------------- | -------
|                                                           
|In thousands except per share                               |  | 2003                          |        
|                                                           
|NET SALES                                                   |  | $                             | 376,038
|                                                            |  |                              
|COSTS AND EXPENSES (INCOME)                                 |  |                               |        
|Cost of products sold                                       |  |                               | 352,655
|Selling, general and administrative                         |  |                               | 25,603 
|Interest                                                    |  |                               | 17,042 
|Loss on early retirement of debt                            |  |                               | 11,246 
|Other income                                                |  |                               | (6,196 
|                                                            |  |                               |        
|                                                            |  |                               | 400,350
|                                                            |  |                               |        
|INCOME (LOSS) BEFORE THE FOLLOWING ITEMS                    |  |                               | (24,312
|                                                            |  |                              
|Income taxes (benefit)                                      |  |                               | (11,465
|                                                            |  |                               |        
|                                                            |  |                               | (12,847
|                                                            |  |                              
|Dividends on preferred securitiesnet of tax                |  |                               | (1,787 
|                                                            |  |                               |        
|INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE |  |                               | (14,634
|                                                            |  |                              
|Cumulative effect of accounting changenet of tax           |  |                               | (1,071 
|                                                            |  |                               |        
|NET INCOME (LOSS)                                           |  | $                             | (15,705
|                                                            |  |                               |        
|Basic earnings (loss) per share:                            |  |                               |        
|Income (loss) before cumulative effect of accounting change |  | $                             | (.69   
|Cumulative effect of accounting change                      |  |                               | (.05   
|                                                            |  |                               |        
|Net income (loss)                                           |  | $                             | (.74   
|                                                            |  |                               |        
|Diluted earnings (loss) per share:                          |  |                               |        
|Income (loss) before cumulative effect of accounting change |  | $                             | (.69   
|Cumulative effect of accounting change                      |  |                               | (.05   
|                                                            |  |                               |        
|Net income (loss)                                           |  | $                             | (.74   
|                                                            |  |                               |        
|Average shares outstanding:                                 |  |                               |        
|Basic                                                       |  |                               | 21,146 
|                                                            |  |                              
|Diluted                                                     |  |                               | 21,146 
|                                                            |  |                               |        
|Cash dividends per share                                    |  | $                             | .075   
|                                                            |  |                               |        



See
notes to consolidated financial statements.



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(Unaudited)

CONSOLIDATED STATEMENTS OF CASH FLOWS

TEXAS INDUSTRIES, INC. AND SUBSIDIARIES



|                                                  |  | Three months ended August 31, |         
|------------------------------------------------- |  | ----------------------------- | --------
|                                                 
|In thousands                                      |  | 2003                          |         
|                                                 
|OPERATING ACTIVITIES                              |  |                               |         
|Net income (loss)                                 |  | $                             | (15,705 
|Cumulative effect of accounting changenet of tax |  |                               | 1,071   
|Loss on early retirement of debt                  |  |                               | 11,246  
|Gain on disposal of assets                        |  |                               | (1,361  
|Non-cash items                                    |  |                               |         
|Depreciation, depletion and amortization          |  |                               | 24,127  
|Deferred taxes (benefit)                          |  |                               | (12,607 
|Othernet                                         |  |                               | 3,284   
|Changes in operating assets and liabilities       |  |                               |         
|Receivables repurchased                           |  |                               | (115,514
|Receivablesnet                                   |  |                               | (2,542  
|Inventories and prepaid expenses                  |  |                               | 14,346  
|Accounts payable and accrued liabilities          |  |                               | 10,660  
|Real estate and investments                       |  |                               | (508    
|                                                  |  |                               |         
|Net cash provided (used) by operations            |  |                               | (83,503 
|                                                  |  |                              
|INVESTING ACTIVITIES                              |  |                               |         
|Capital expenditures                              |  |                               | (7,497  
|Proceeds from disposal of assets                  |  |                               | 1,806   
|Othernet                                         |  |                               | (1,743  
|                                                  |  |                               |         
|Net cash used by investing                        |  |                               | (7,434  
|                                                  |  |                              
|FINANCING ACTIVITIES                              |  |                               |         
|Long-term borrowings                              |  |                               | 717,731 
|Debt retirements                                  |  |                               | (591,236
|Debt issuance costs                               |  |                               | (15,834 
|Debt retirement costs                             |  |                               | (8,505  
|Common dividends paid                             |  |                               | (1,581  
|Othernet                                         |  |                               | (490    
|                                                  |  |                               |         
|Net cash provided (used) by financing             |  |                               | 100,085 
|                                                  |  |                               |         
|Increase (decrease) in cash                       |  |                               | 9,148   
|                                                  |  |                              
|Cash at beginning of period                       |  |                               | 6,204   
|                                                  |  |                               |         
|Cash at end of period                             |  | $                             | 15,352  
|                                                  |  |                               |         



See
notes to consolidated financial statements.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



Texas Industries, Inc. and subsidiaries (unless the context indicates otherwise, collectively, the Company or TXI) is a leading supplier of construction materials through two business segments:
cement, aggregate and concrete products (the CAC segment); and structural steel and specialty bar products (the Steel segment). Through the CAC segment, the Company produces and sells cement, stone, sand and gravel, expanded
shale and clay aggregate, and concrete products from facilities concentrated in Texas, Louisiana, and California, with several products marketed throughout the United States. Through the Steel segment, the Company produces and sells structural
steel, piling products, specialty bar products, merchant bar-quality rounds, reinforcing bar and channels from facilities located in Texas and Virginia, for markets in North America.



SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended August 31,
2003, are not necessarily indicative of the results that may be expected for the year ended May 31, 2004. For further information, refer to the consolidated financial statements and footnotes thereto included in the Companys Annual Report on
Form 10-K for the year ended May 31, 2003.



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



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



Cash Equivalents. For cash flow purposes, temporary investments which
have maturities of less than 90 days when purchased are considered cash equivalents.



Receivables.Management evaluates the ability to collect accounts receivable based on a combination of factors. A reserve for doubtful accounts is maintained based on the length of time receivables are past due
or the status of a customers financial condition. If the Company is aware of a specific customers inability to make required payments, specific amounts are added to the reserve.



Environmental Liabilities.The Company is subject to environmental
laws and regulations established by federal, state and local authorities, and makes provision for the estimated costs related to compliance when it is probable that a reasonably estimable liability has been incurred.



Legal Contingencies.The Company and its subsidiaries are defendants
in lawsuits which arose in the normal course of business, and make provision for the estimated loss from any claim or legal proceeding when it is probable that a reasonably estimable liability has been incurred.



Long-lived Assets.Management reviews long-lived assets for impairment
whenever changes in circumstances indicate that the carrying amount of the assets may not be recoverable and would record an impairment charge if necessary. Such evaluations compare the carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset and are significantly impacted by estimates of future prices for the Companys products, capital needs, economic trends and other factors.



Property, plant and equipment is recorded at cost. Provisions for depreciation are computed generally using the
straight-line method. Provisions for depletion of mineral deposits are computed on the basis of the estimated quantity of recoverable raw materials. Useful lives for the Companys primary operating facilities range from 10 to 20 years.
Maintenance and repairs are charged to expense as incurred. Costs incurred for scheduled shut-downs to refurbish the Steel facilities are amortized over the benefited period, typically 12 to 24 months.



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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued



Goodwill and Other Intangible Assets. Management tests goodwill for
impairment at least annually by each reporting unit. If the carrying amount of the goodwill exceeds its fair value an impairment loss is recognized. In applying a fair-value-based test, estimates are made of the expected future cash flows to be
derived from the applicable reporting unit. Similar to the review for impairment of other long-lived assets, the resulting fair value determination is significantly impacted by estimates of future prices for the Companys products, capital
needs, economic trends and other factors. Goodwill identified with CAC resulted from the acquisition of Riverside Cement Company. Goodwill identified with Steel resulted from the acquisition of Chaparral Steel Company. In each case the fair value of
the respective reporting unit exceeds its carrying value. The carrying value of CAC goodwill was $61.3 million, net of accumulated amortization of $5.5 million, and the carrying value of Steel goodwill was $85.2 million, net of accumulated
amortization of $27.1 million, at both August 31, 2003 and May 31, 2003.



Deferred charges and intangibles include non-compete agreements and other intangibles with finite lives being amortized on a straight-line basis over periods of 5 to 15 years. Their carrying value, adjusted for
write-offs, total $2.4 million, net of accumulated amortization of $3.7 million at August 31, 2003 and $2.5 million, net of accumulated amortization of $3.6 million at May 31, 2003. Amortization expense incurred was $100,000 and $300,000 in the
three-month periods ended August 31, 2003 and 2002, respectively. Estimated annual amortization for each of the five succeeding years is $400,000, $400,000, $300,000, $300,000 and $300,000.



Real Estate and Investments.Surplus real estate and real estate
acquired for development of high quality industrial and multi-use parks, recorded at cost, totaled $11.6 million at both August 31, 2003 and May 31, 2003. Investments totaled $34.7 million and $32.0 million at August 31, 2003 and May 31, 2003,
respectively, and are composed primarily of life insurance contracts, which are recorded at their net cash surrender value and may be used to fund certain Company benefit agreements. The Company does not invest in debt or equity securities.



Debt Issuance Costs.Debt issuance costs of $22.2
million and $9.7 million at August 31, 2003 and May 31, 2003, respectively, are associated with various debt issues and amortized over the terms of the related debt.



Other Credits.Other credits of $51.5 million and $44.8 million at August 31, 2003 and May 31, 2003, respectively,
are composed primarily of liabilities related to the Companys retirement plans, deferred compensation agreements and asset retirement obligations.



Asset Retirement Obligations.Effective June 1, 2003, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 143,
Accounting for Asset Retirement Obligations, which applies to legal obligations associated with the retirement of long-lived assets.



SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the
end of each period through charges to operating expenses. If the obligation is settled for other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement.



The Company incurs legal obligations for asset retirement as part of its
normal CAC and Steel operations related to land reclamation, plant removal and Resource Conservation and Recovery Act closures. Prior to the adoption of SFAS No. 143, the Company generally accrued for land reclamation obligations related to its
aggregate mining process on the unit of production basis and for its other obligations as incurred. Determining the amount of an asset retirement liability requires estimating the future cost of contracting with third parties to perform the
obligation. The estimate is significantly impacted by, among other considerations, managements assumptions regarding the scope of the work required, labor costs, inflation rates, market-risk premiums and closure dates. Application of the new
rules resulted in an increase in net property, plant and equipment of $500,000, a net increase in asset retirement obligation liabilities of $2.2 million and a pre-tax cumulative charge of $1.7 million.



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##### Table of Contents

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued



Changes in the asset retirement obligation for the three-month period ended
August 31, 2003 are as follows:



|Balance at June 1    |  | $ | 4,092 |  
|-------------------- |  | - | ----- | -
|Accretion expense    |  |   | 69    |  
|Payments             |  |   | (101  | )
|                     |  |   |       |  
|Balance at August 31 |  | $ | 4,060 |  
|                     |  |   |       |  



Pro forma effects for
the periods presented, assuming adoption of SFAS No. 143 retroactively, were not material to net income (loss) or the related per-share amounts.



Pension Liability Adjustment.The pension liability adjustment to shareholders equity of $5.9 million at both August 31, 2003 and May 31,
2003 (net of tax of $3.2 million) relates to a defined benefit retirement plan covering approximately 550 employees and retirees of an acquired subsidiary. Comprehensive income or loss consists of net income or loss and the pension liability
adjustment to shareholders equity. Comprehensive loss for the three-month period ended August 31, 2003 was the same as net loss. Comprehensive income for the three-month period ended August 31, 2002 was $2.8 million.



Net Sales. Sales are recognized when title has transferred and
products are delivered. Historically, the Company has included delivery fees in the amount it billed customers to the extent needed to recover the Companys cost of freight and delivery. Net sales were presented as revenues including delivery
fees offset by freight and delivery costs and were disclosed as such. The Emerging Issues Task Force of the FASB reached a final consensus on Issue No. 00-10, Accounting for Shipping and Handling Fees and Costs. EITF 00-10 addresses the
income statement classification of amounts charged to customers for shipping and handling, as well as costs incurred related to shipping and handling. The EITF concluded that amounts billed to a customer in a sale transaction related to shipping and
handling should be classified as revenue. The EITF also concluded that if costs incurred related to shipping and handling are significant and not included in cost of sales, an entity should disclose both the amount of such costs and the line item on
the income statement that includes them. In connection with this issue, the Company currently classifies freight and delivery costs in cost of products sold. To conform to the current presentation freight and delivery costs of approximate $27.0
million has been reclassified from net sales to cost of products sold in the three-month period ended August 31, 2002. This reclassification had no effect on the Companys results of operations or financial position.



Other Income.Other income includes routine sales of surplus operating
assets and real estate in the amount of $1.4 million and $100,000 in the three-month periods ended August 31, 2003 and 2002, respectively. Also included in other income in the three-month period ended August 31, 2003 was $4.2 million from the
Companys litigation against certain graphite electrode suppliers.



Income Taxes. Accounting for income taxes uses the liability method of recognizing and classifying deferred income taxes. The Company joins in filing a consolidated return with its subsidiaries. Current and
deferred tax expense is allocated among the members of the group based on a stand-alone calculation of the tax of the individual member.



Earnings Per Share(EPS). Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding
during the period including certain contingently issuable shares related to deferred compensation agreements in which directors elected to defer annual and meeting fees or executives elected to defer incentive compensation and vested shares under
the Companys former stock awards program. The shares are considered contingently issuable because the director or executive has an unconditional right to the shares to be issued. The deferred compensation is denominated in shares of the
Companys Common Stock and issued upon retirement or at such earlier date as approved by the Company. Vested stock award shares are issued in the year in which the employee reaches age 60.



Diluted EPS adjusts net income and the outstanding shares for the dilutive
effect of preferred securities, stock options and awards.



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##### Table of Contents

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued



Basic and Diluted EPS are calculated as follows:



|                                                            |  | August 31,
|----------------------------------------------------------- |  | ----------
|                                                           
|In thousands except per share                               |  | 2003      
|                                                           
|Earnings:                                                   |  |           
|Income (loss) before cumulative effect of accounting change |  | $         
|Cumulative effect of accounting change                      |  |           
|                                                            |  |           
|Net income (loss)                                           |  | $         
|                                                            |  |           
|Shares:                                                     |  |           
|Weighted-average shares outstanding                         |  |           
|Contingently issuable shares                                |  |           
|                                                            |  |           
|Basic weighted-average shares                               |  |           
|                                                            |  |           
|Stock option and award dilution                             |  |           
|                                                            |  |           
|Diluted weighted-average shares*                            |  |           
|                                                            |  |           
|Basic earnings (loss) per share:                            |  |           
|Income (loss) before cumulative effect of accounting change |  | $         
|Cumulative effect of accounting change                      |  |           
|                                                            |  |           
|Net income (loss)                                           |  | $         
|                                                            |  |           
|Diluted earnings (loss) per share:                          |  |           
|Income (loss) before cumulative effect of accounting change |  | $         
|Cumulative effect of accounting change                      |  |           
|                                                            |  |           
|Net income (loss)                                           |  | $         
|                                                            |  |           
|* Shares excluded due to antidilutive effect:               |  |           
|Preferred securities                                        |  |           
|Stock options and awards                                    |  |           



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 Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, (SFAS No. 123). 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
accordance with SFAS No. 123, the Company discloses the compensation cost based on the estimated fair value at the date of grant recognizing compensation expense ratably over the vesting period. No options were granted in the three-month periods
ending August 31, 2003 and 2002.



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##### Table of Contents

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued



If the Company had recognized compensation expense for the stock option plan
based on the fair value at the grant dates for awards, the Companys net income (loss) and earnings (loss) per share would have been reduced to the following pro forma amounts:



|                                                                                                           |  | August 31, |        
|---------------------------------------------------------------------------------------------------------- |  | ---------- | -------
|                                                                                                          
|In thousands except per share                                                                              |  | 2003       |        
|                                                                                                          
|Net income (loss)                                                                                          |  |            |        
|As reported                                                                                                |  | $          | (15,705
|Plus:  stock-based compensation included in the determination of net income (loss) as reported, net of
tax |  |            | 27     
|Less:  fair value of stock-based compensation, net of tax                                                  |  |            | (968   
|                                                                                                           |  |            |        
|Pro forma                                                                                                  |  | $          | (16,646
|                                                                                                           |  |            |        
|Basic earnings (loss) per share                                                                            |  |            |        
|As reported                                                                                                |  | $          | (.74   
|Pro forma                                                                                                  |  |            | (.79   
|                                                                                                           |  |           
|Diluted earnings (loss) per share                                                                          |  |            |        
|As reported                                                                                                |  |            | (.74   
|Pro forma                                                                                                  |  |            | (.79   



New Accounting
Pronouncements.Effective June 1, 2003, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. For most companies, SFAS No. 145 will require gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under SFAS No. 4.
Extraordinary treatment will be required for certain extinguishments as provided in APB Opinion No. 30. SFAS No. 145 also amends SFAS No. 13 to require certain modifications to capital leases be treated as a sale-leaseback and modifies the
accounting for sub-leases when the original lessee remains a secondary obligor (or guarantor). Its adoption required that the loss on early retirement of debt incurred in the August 2003 quarter be recognized as an ordinary loss.



Effective June 1, 2003, the Company adopted SFAS No. 150, Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The
Company has no financial instruments for which a change in classification was required.



In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of Variable Interest Entities, 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. Effective December 1, 2003, the Company will adopt the provisions of Interpretation No. 46. Its adoption is not expected to have a material impact on the financial statements of
the Company.



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WORKING CAPITAL



Working capital totaled $315.9 million at August 31, 2003 and $211.6 million at May 31, 2003.



Receivables consist of:



|                              
|------------------------------
|In thousands                  
|                              
|Notes and interest receivables
|Tax refund claims             
|Accounts receivablenet       
|                              
|                              
|                              



Accounts receivable
are presented net of allowances for doubtful receivables of $6.4 million at August and $4.4 million at May. Provisions for bad debts charged to expense in the three-month periods ended August 31, 2003 and 2002 were $2.3 million and $600,000,
respectively. Uncollectible accounts written off in the three-month periods ended August 31, 2003 and 2002 were $300,000 and $200,000, respectively.



The Company had an agreement to sell, on a revolving basis, an interest in a defined pool of trade receivables of up to $125 million. The interest sold
totaled $115.5 million at May 31, 2003. On June 6, 2003, the Company entered into an agreement whereby the entire outstanding interest in the defined pool of trade receivables previously sold was repurchased and the agreement to sell receivables was
terminated. The repurchase was reflected as an increase in accounts receivable and reduction in operating cash flows.



Inventories consist of:



|                          
|--------------------------
|In thousands              
|                          
|Finished products         
|Work in process           
|Raw materials and supplies
|                          
|                          
|                          



Inventories are stated
at cost (not in excess of market) with a majority of inventories using the last-in, first-out method (LIFO). If the average cost method (which approximates current replacement cost) had been used, inventory values would have been higher by $16.5
million at August and May.



Accrued interest, wages and other
items consist of:



|                        
|------------------------
|In thousands            
|                        
|Interest                
|Employee compensation   
|Income taxes            
|Property taxes and other
|                        
|                        
|                        



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##### Table of Contents

LONG-TERM DEBT



Long-term debt is comprised of the following:



|                                                                         
|-------------------------------------------------------------------------
|In thousands                                                             
|                                                                         
|Senior secured credit facility maturing in 2007                          
|Senior notes due in 2011, interest rate 10.25%                           
|Pollution control bonds due through 2007, interest rate 3% (75% of prime)
|Fair value of interest rate swaps                                        
|Refinanced debt                                                          
|Other                                                                    
|                                                                         
|                                                                         
|Less current maturities                                                  
|                                                                         
|                                                                         
|                                                                         



On June 6, 2003, the
Company issued $600 million of 10.25% senior notes maturing June 15, 2011. The net proceeds were used to repay $473.5 million of the outstanding debt at May 31, 2003. The remaining proceeds were applied toward the cost of the Companys
agreement whereby the entire outstanding interest in the defined pool of trade receivables previously sold was repurchased and the agreement to sell receivables was terminated. The Company recognized an ordinary loss on early retirement of debt of
$11.2 million, representing $8.5 million in premium or consent payments to holders of the existing senior notes and a write-off of $2.7 million of debt issuance costs associated with the debt repaid.



The new senior notes represent general unsecured senior obligations of the
Company. The new senior notes were issued by Texas Industries, Inc. (the parent company), which has no independent assets or operations, excluding amounts related to its investments in its consolidated subsidiaries and financing activities. All 100%
owned subsidiaries of the Company, excluding TXI Capital Trust I and minor subsidiaries without operations or material assets, have provided a joint and several, full and unconditional guarantee of the securities. The terms of the notes contain
covenants that among other things provide for restrictions on the payment of dividends or repurchasing common stock, making certain investments, incurring additional debt or selling preferred stock, creating liens, and transferring assets. At any
time prior to June 15, 2006, the Company may redeem up to 35% of the aggregate principal amount of the notes at a redemption price of 110.25% of the principal amount thereof, plus accrued interest, with the net cash proceeds from certain equity
offerings. In addition, at any time on or prior to June 15, 2007, the Company may redeem all or part of the notes at a redemption price equal to the sum of the principal amount thereof, plus accrued interest and a make-whole premium. After June 15,
2007, the Company may redeem all or a part of the notes at a redemption price of 105.125% in 2007, 102.563% in 2008 and 100% in 2009 and thereafter.



In addition, the Company entered into a new senior secured credit facility, which provides up to $200 million of available borrowings, subject to a
borrowing base. The facility matures in June 2007, with borrowings limited based on the net amounts of eligible accounts receivable and inventory. Initial borrowings bear annual interest at either the LIBOR based rate plus 2.5% or the prime rate
plus .5%. These interest rate margins are subject to performance price adjustments. Commitment fees at an annual rate of .375% are to be paid on the unused portion of the facility. The Company may terminate the facility at anytime, and under certain
circumstances may be required to pay a termination fee.



The
senior secured credit facility is collateralized by first priority liens on substantially all of the Companys existing and future acquired accounts receivable, inventory, deposit accounts and certain of its general intangibles. The agreement
contains covenants restricting, among other things, prepayment or redemption of notes, distributions, dividends and repurchases of capital stock and other equity interests, acquisitions and investments, indebtedness, liens and affiliate
transactions. In addition, there is the requirement to meet certain financial tests and to maintain certain financial ratios if the excess availability under the senior secured credit facility falls below $30 million, including maintaining a fixed
charge coverage ratio and meeting a minimum tangible net worth test.



No borrowings were outstanding under the senior secured credit facility at August 31, 2003, however, $20.6 million of the facility was utilized to support letters of credit.



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##### Table of Contents

LONG-TERM DEBT-Continued



The Companys ability to incur additional debt is currently limited to borrowings available under the senior secured
credit facility. The payment of cash dividends on Common Stock is currently limited to an annual amount of $7.0 million.



Annual maturities of long-term debt for each of the five succeeding years are $700,000, $700,000, $700,000, $700,000, and $1.1 million.



Effective August 5, 2003, the Company entered into interest rate swap
agreements that have the economic effect of modifying the interest obligations associated with $200 million of the senior notes such that the interest payable on the senior notes effectively becomes variable based on six month LIBOR, set on June
15thand December 15thof each year. The interest rate swaps have been designated as fair value hedges and have no ineffective portion. The notional amounts and the termination dates match the principal amounts and
maturities of the $200 million portion of the outstanding senior notes. As a result of the interest rate swaps, the current effective interest rate on the hedged portion of the senior notes was reduced to 6.74%.



The amount of interest paid in the three-month periods ended August 31, 2003
and 2002 was $6.4 million and $2.1 million, respectively.



PREFERRED SECURITIES OF SUBSIDIARY



On June 5, 1998, TXI Capital Trust I (the Trust), a Delaware business trust 100% owned by the Company, issued 4,000,000 of its 5.5% Shared Preference Redeemable Securities (Preferred Securities) to the public for
gross proceeds of $200 million. The combined proceeds from the issuance of the Preferred Securities and the issuance to the Company of the common securities of the Trust were invested by the Trust in $206.2 million aggregate principal amount of 5.5%
convertible subordinated debentures due June 30, 2028 (the Debentures) issued by the Company. At August 31, 2003, 3,998,744 Preferred Securities and $206.1 million aggregate principal amount of Debentures were outstanding. The Preferred
Securities represent an undivided beneficial interest in the Companys Debentures, which are intercompany debt held by the Trust. The Debentures and related trust investment in the Debentures have been eliminated in consolidation and the
Preferred Securities reflected as outstanding in the accompanying consolidated financial statements.



Holders of the Preferred Securities are entitled to receive cumulative cash distributions at an annual rate of $2.75 per Preferred Security (equivalent to
a rate of 5.5% per annum of the stated liquidation amount of $50 per Preferred Security). The Company has guaranteed, on a subordinated basis, distributions and other payments due on the Preferred Securities, to the extent the Trust has funds
available therefor and subject to certain other limitations (the Guarantee). The Guarantee, when taken together with the obligations of the Company under the Debentures, the Indenture pursuant to which the Debentures were issued, and the
Amended and Restated Trust Agreement of the Trust (including its obligations to pay costs, fees, expenses, debts and other obligations of the Trust [other than with respect to the Preferred Securities and the common securities of the Trust]),
provide a full and unconditional guarantee of amounts due on the Preferred Securities.



The Debentures are redeemable for cash, at par, plus accrued and unpaid interest, under certain circumstances relating to federal income tax matters or in whole or in part at the option of the Company. Upon any
redemption of the Debentures, a like aggregate liquidation amount of Preferred Securities will be redeemed. The Preferred Securities do not have a stated maturity date, although they are subject to mandatory redemption upon maturity of the
Debentures on June 30, 2028, or upon earlier redemption.



Each
Preferred Security is convertible at any time prior to the close of business on June 30, 2028, at the option of the holder into shares of the Companys common stock at a conversion rate of .72218 shares of the Companys common stock for
each Preferred Security.



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##### Table of Contents

SHAREHOLDERS EQUITY



Common stock consists of:



|                                           
|-------------------------------------------
|In thousands                               
|                                           
|Shares authorized                          
|Shares outstanding at end of period        
|Shares held in treasury                    
|Shares reserved for stock options and other



There are authorized
100,000 shares of Cumulative Preferred Stock, no par value, of which 20,000 shares are designated $5 Cumulative Preferred Stock (Voting), redeemable at $105 per share and entitled to $100 per share upon dissolution. An additional 25,000 shares are
designated Series B Junior Participating Preferred Stock. The Series B Preferred Stock is not redeemable and ranks, with respect to the payment of dividends and the distribution of assets, junior to (i) all other series of the Preferred Stock unless
the terms of any other series shall provide otherwise and (ii) the $5 Cumulative Preferred Stock. Pursuant to a Rights Agreement, in November 1996, the Company distributed a dividend of one preferred share purchase right for each outstanding share
of the Companys Common Stock. Each right entitles the holder to purchase from the Company one two-thousandth of a share of the Series B Junior Participating Preferred Stock at a price of $122.50, subject to adjustment. The rights will expire
on November 1, 2006 unless the date is extended or the rights are earlier redeemed or exchanged by the Company pursuant to the Rights Agreement.



STOCK OPTION PLAN



The Companys stock option plan as approved by shareholders expired July 14, 2003. The plan provided that non-qualified and incentive stock options
to purchase Common Stock may be granted to directors, officers and key employees at market prices at date of grant. Outstanding options become exercisable in installments beginning one year after date of grant and expire ten years later.



A summary of option transactions for the three-month period ended August
31, 2003, follows:



|                        
|------------------------
|                        
|                        
|Outstanding at June 1   
|Exercised               
|Cancelled               
|                        
|Outstanding at August 31
|                        



At August 31, 2003,
there were 1,772,333 shares exercisable. Current outstanding options expire on various dates to May 15, 2013.



INCOME TAXES



Federal income taxes for the interim periods ended August 31, 2003 and 2002, have been included in the accompanying financial statements on the basis of
an estimated annual rate. The estimated annualized tax rate is 45.3% for 2003 compared to 30.6% for 2002. The primary reason that these respective tax rates differ from the 35% statutory corporate rate is due to percentage depletion which is tax
deductible and state income tax expense. The Company made income tax payments of $700,000 and $2.1 million in the three-month periods ended August 31, 2003 and 2002, respectively.



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##### Table of Contents

LEGAL PROCEEDINGS AND CONTINGENT LIABILITIES



The Company is subject to federal, state and local environmental laws and
regulations concerning, among other matters, air emissions, furnace dust disposal and wastewater discharge. The Company believes it is in substantial compliance with applicable environmental laws and regulations, however, from time to time the
Company receives claims from federal and state environmental regulatory agencies and entities asserting that the Company is or may be in violation of certain environmental laws and regulations. Based on its experience and the information currently
available to it, the Company believes that such claims will not have a material impact on its financial condition or results of operations. Despite the Companys compliance and experience, it is possible that the Company could be held liable
for future charges which might be material but are not currently known or estimable. In addition, changes in federal or state laws, regulations or requirements or discovery of currently unknown conditions could require additional expenditures by the
Company.



The Company and subsidiaries are defendants in
lawsuits which arose in the normal course of business. In managements judgment (based on the opinion of counsel) the ultimate liability, if any, from such legal proceedings will not have a material effect on the consolidated financial position
or results of operations of the Company.



BUSINESS SEGMENTS



The Company has two reportable
segments: cement, aggregate and concrete products (the CAC segment) and steel (the Steel segment). The Companys reportable segments are strategic business units that offer different products and services. They are
managed separately because of significant differences in manufacturing processes, distribution and markets served. Through the CAC segment the Company produces and sells cement, stone, sand and gravel, expanded shale and clay aggregate, and concrete
products. Through the Steel segment, the Company produces and sells structural steel, piling products, specialty bar products, merchant bar-quality rounds, reinforcing bar and channels. Operating profit is net sales less operating costs and
expenses, excluding general corporate expenses and interest expense. Operating results and certain other financial data for the Companys business segments are presented on pages 17 and 18 under Business Segments of
Managements Discussion and Analysis of Financial Condition and Results of Operations, and are incorporated herein by reference.



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##### Table of Contents

EXHIBIT A



INDEPENDENT
ACCOUNTANTS REVIEW REPORT



The
Shareholders and Board of Directors

Texas Industries, Inc.



We have reviewed the accompanying condensed consolidated balance sheet of Texas Industries, Inc. and subsidiaries (the Company) as of August
31, 2003 and the related condensed consolidated statements of operations and cash flows for the three-month periods ended August 31, 2003 and 2002. These financial statements are the responsibility of the Companys management.



We conducted our reviews in accordance with standards established by the American Institute
of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.



Based on our reviews, we are
not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States.



We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Texas Industries, Inc. and subsidiaries as of May 31, 2003, and the related consolidated statements of operations, shareholders equity, and cash flows for the year then ended
[not presented herein] and in our report dated July 14, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of
May 31, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.



/s/ Ernst & Young LLP



September 16, 2003



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##### Table of Contents

MANAGEMENTS DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Comparison of operations and financial condition for the three-month period
ended August 31, 2003 to the three-month period ended August 31, 2002.



BUSINESS SEGMENTS



The Company
is a leading supplier of construction materials through two business segments: cement, aggregate and concrete products (the CAC segment); and structural steel and specialty bar products (the Steel segment). Through the CAC
segment, the Company produces and sells cement, stone, sand and gravel, expanded shale and clay aggregate, and concrete products. Through the Steel segment, the Company produces and sells structural steel, piling products, specialty bar products,
merchant bar-quality rounds, reinforcing bar and channels.



Corporate resources include administration, financial, legal, environmental, human resources and real estate activities that are not allocated to operations and are excluded from operating profit.



|                            |  | Three months ended August 31,
|--------------------------- |  | -----------------------------
|                           
|In thousands                |  | 2003                         
|                           
|TOTAL SALES                 |  |                              
|Cement                      |  | $                            
|Ready-mix                   |  |                              
|Stone, sand & gravel        |  |                              
|Structural mills            |  |                              
|Bar mill                    |  |                              
|                            |  |                              
|UNITS SHIPPED               |  |                              
|Cement (tons)               |  |                              
|Ready-mix (cubic yards)     |  |                              
|Stone, sand & gravel (tons) |  |                              
|Structural mills (tons)     |  |                              
|Bar mill (tons)             |  |                              
|                            |  |                              
|NET SALES                   |  |                              
|Cement                      |  | $                            
|Ready-mix                   |  |                              
|Stone, sand & gravel        |  |                              
|Other products              |  |                              
|Delivery fees               |  |                              
|                            |  |                              
|TOTAL CAC                   |  |                              
|                            |  |                              
|Structural mills            |  |                              
|Bar mill                    |  |                              
|Other products              |  |                              
|Delivery fees               |  |                              
|                            |  |                              
|TOTAL STEEL                 |  |                              
|                            |  |                              
|TOTAL NET SALES             |  | $                            
|                            |  |                              



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##### Table of Contents

|                                             |  | Three months ended August 31, |        
|-------------------------------------------- |  | ----------------------------- | -------
|                                            
|In thousands                                 |  | 2003                          |        
|                                            
|CAC OPERATIONS                               |  |                               |        
|Gross profit                                 |  | $                             | 41,200 
|Less: Depreciation, depletion & amortization |  |                               | 11,473 
|Selling, general & administrative            |  |                               | 11,297 
|Other income                                 |  |                               | (1,771 
|                                             |  |                               |        
|OPERATING PROFIT                             |  |                               | 20,201 
|                                             |  |                              
|STEEL OPERATIONS                             |  |                               |        
|Gross profit                                 |  |                               | 5,609  
|Less: Depreciation & amortization            |  |                               | 12,178 
|Selling, general & administrative            |  |                               | 7,466  
|Other income                                 |  |                               | (3,941 
|                                             |  |                               |        
|OPERATING LOSS                               |  |                               | (10,094
|                                             |  |                               |        
|TOTAL OPERATING PROFIT                       |  |                               | 10,107 
|                                             |  |                              
|CORPORATE RESOURCES                          |  |                               |        
|Other income                                 |  |                               | 484    
|Less: Depreciation & amortization            |  |                               | 476    
|Selling, general & administrative            |  |                               | 6,139  
|                                             |  |                               |        
|                                             |  |                               | (6,131 
|                                             |  |                              
|INTEREST EXPENSE                             |  |                               | (17,042
|                                             |  |                              
|LOSS ON EARLY RETIREMENT OF DEBT             |  |                               | (11,246
|                                             |  |                               |        
|INCOME (LOSS) BEFORE TAXES & OTHER ITEMS     |  | $                             | (24,312
|                                             |  |                               |        



RESULTS OF OPERATIONS



CAC Operations



CAC operating profit declined $8.2 million. Higher maintenance and energy
costs and lower realized prices at the Companys Texas cement plants more than offset an increase in aggregate shipments. Overall demand for CAC products has remained stable.



Net Sales. CAC sales at $196.4 million were down less than 1%. Total cement sales declined $2.9 million on 3% lower
average trade prices and comparable shipments. Ready-mix sales declined $6.6 million on 10% lower shipments. Aggregate sales increased $4.1 million on 19% higher shipments and 6% lower average trade prices.



Operating Costs. CAC costs at $166.4 million, including depreciation,
depletion and amortization, increased $8.8 million due to a 13% increase in unit cement manufacturing costs resulting from higher maintenance and energy costs at the Companys Texas cement plants.



Selling, general and administrative expense at $11.5 million, including
depreciation and amortization, decreased $900,000 from the prior year period primarily due to lower payroll, incentive and bad debt expense.



Other income increased $1.2 million from the prior year period due to higher gains from the disposal of surplus operating assets.



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##### Table of Contents

Steel Operations



Steel operating profit declined $6.9 million, including a $4.2 million increase in other income from the Companys litigation against certain
graphite electrode suppliers. Higher energy and scrap costs offset a 7% increase in structural steel shipments. The decline in non-residential construction continues to result in a very competitive structural steel market.



Net Sales. Steel sales at $179.7 million increased $11.5 million from
the prior year period. Structural steel sales increased $8.6 million on 7% higher shipments. Average realized prices were somewhat lower than the prior year period but 3% above the May 2003 quarter. Bar mill sales increased $2.1 million on 7% higher
realized prices.



Operating Costs. Steel costs at $186.2
million, including depreciation and amortization, increased $20.1 million due to increased structural steel shipments and the effect of higher energy and scrap costs on unit costs.



Selling, general and administration expense, including depreciation and amortization, at $7.5 million increased $1.5 million
from the prior year period due to higher bad debt expense.



Other income in the current quarter included $4.2 million from the Companys litigation against certain graphite electrode suppliers.



Corporate Resources



Selling, general and administrative expenses at $6.6 million, including depreciation and amortization, decreased $1.4 million from the prior year period
due to lower general expenses and the termination of the Companys agreement to sell receivables.



Other income increased $400,000 from the prior year period due to higher interest income and gains from the disposal of corporate assets.



Interest Expense



Interest expense at $17.0 million increased $8.2 million from the prior year period. The June 2003 refinancing added
approximately 4% to the Companys overall average effective interest rate and together with the increased outstanding debt of $125.3 million is expected to result in higher annual interest costs of approximately $30 million.



Loss on Early Retirement of Debt



As a result of the June 2003 refinancing, the Company recognized an ordinary
loss on early retirement of debt of $11.2 million, representing $8.5 million in premium or consent payments to holders of the existing senior notes and a write-off of $2.7 million of debt issuance costs associated with the debt repaid.



Income Taxes



The Companys current effective tax rate is estimated at 45.3% compared to 30.6% in the prior year period. The primary
reason that the tax rate differs from the 35% statutory corporate rate is due to percentage depletion that is tax deductible and state income tax expense.



Dividends on Preferred Securities  Net of Tax



Dividends on preferred securities of subsidiary net of tax benefit amounted to $1.8 million in each of the three-month periods ended August 31, 2003 and
2002.



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##### Table of Contents

Cumulative Effect of Accounting Change  Net of Tax



Effective June 1, 2003, the Company adopted Statement of Financial
Accounting Standards No. 143 Accounting for Asset Retirement Obligations, which applies to legal obligations associated with the retirement of long-lived assets. The Company incurs legal obligations for asset retirement as part of its
normal CAC and Steel operations related to land reclamation, plant removal and Resource Conservation and Recovery Act closures. Application of the new rules resulted in a cumulative charge of $1.1 million, net of tax of $600,000.



LIQUIDITY AND CAPITAL RESOURCES



To improve liquidity and provide more financial and operating flexibility,
the Company on June 6, 2003 issued $600 million of 10.25% senior notes maturing June 15, 2011. The net proceeds were used to repay $473.5 million of the outstanding debt at May 31, 2003. The remaining proceeds were applied toward the cost of the
Companys agreement whereby the entire outstanding interest in the defined pool of trade receivables previously sold was repurchased and the agreement to sell receivables was terminated.



The new senior notes represent general unsecured senior obligations of the
Company. The new senior notes were issued by Texas Industries, Inc. (the parent company), which has no independent assets or operations, excluding amounts related to its investments in its investments in its consolidated subsidiaries and financing
activities. All 100% owned subsidiaries of the Company, excluding TXI Capital Trust I and minor subsidiaries without operations or material assets, have provided a joint and several, full and unconditional guarantee of the securities. The terms of
the notes contain covenants that among other things provide for restrictions on the payment of dividends or repurchasing common stock, making certain investments, incurring additional debt or selling preferred stock, creating liens, and transferring
assets. At any time prior to June 15, 2006, the Company may redeem up to 35% of the aggregate principal amount of the notes at a redemption price of 110.25% of the principal amount thereof, plus accrued interest, with the net cash proceeds from
certain equity offerings. In addition, at any time on or prior to June 15, 2007, the Company may redeem all or part of the notes at a redemption price equal to the sum of the principal amount thereof, plus accrued interest and a make-whole premium.
After June 15, 2007, the Company may redeem all or a part of the notes at a redemption price of 105.125% in 2007, 102.563% in 2008 and 100% in 2009 and thereafter.



In addition, the Company entered into a new senior secured credit facility, which provides up to $200 million of available
borrowings, subject to a borrowing base. The facility matures in June 2007, with borrowings limited based on the net amounts of eligible accounts receivable and inventory. Initial borrowings bear annual interest at either the LIBOR based rate plus
2.5% or the prime rate plus .5%. These interest rate margins are subject to performance price adjustments. Commitment fees at an annual rate of .375% are to be paid on the unused portion of the facility. The Company may terminate the facility at
anytime, and under certain circumstances may be required to pay a termination fee.



The senior secured credit facility is collateralized by first priority liens on substantially all of the Companys existing and future acquired accounts receivable, inventory, deposit accounts and certain of its
general intangibles. The agreement contains covenants restricting, among other things, prepayment or redemption of notes, distributions, dividends and repurchases of capital stock and other equity interests, acquisitions and investments,
indebtedness, liens and affiliate transactions. In addition, there is the requirement to meet certain financial tests and to maintain certain financial ratios if the excess availability under the senior secured credit facility falls below $30
million, including maintaining a fixed charge coverage ratio and meeting a minimum tangible net worth test.



No borrowings were outstanding under the senior secured credit facility at August 31, 2003, however, $20.6 million of the facility was utilized to support
letters of credit.



The Companys ability to incur
additional debt is currently limited to borrowings available under the senior secured credit facility. The payment of cash dividends on Common Stock is currently limited to an annual amount of $7.0 million.



Effective August 5, 2003, the Company entered into interest rate swap
agreements that have the economic effect of modifying the interest obligations associated with $200 million of the senior notes such that the interest payable on the senior notes effectively becomes variable based on six month LIBOR, set on June
15thand December 15thof each year. The interest rate swaps have been designated as fair value hedges and have no ineffective portion. The notional amounts and the termination dates match the principal amounts and
maturities of the $200 million portion of the outstanding senior notes. As a result of the interest rate swaps, the current effective interest rate on the hedged portion of the senior notes was reduced to 6.74%.



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##### Table of Contents

The Company historically has financed major capital expansion projects with cash from operations and
long-term borrowings. Working capital requirements and capital expenditures for normal replacement and technological upgrades of existing equipment and expansions of its operations are funded with cash from operations. The fiscal year 2004 capital
expenditure budget for these activities is estimated currently at approximately $50 million. In addition, the Company leases certain mobile and other equipment used in its operations under operating leases that in the normal course of business are
renewed or replaced by subsequent leases.



We expect cash from
operations and borrowings under the new senior secured credit facility to be sufficient to provide funds for capital expenditure commitments, scheduled debt repayments and working capital needs for at least the next year.



Cash Flows



Net cash used by operating activities was $83.5 million, compared to $31.1 million provided in the prior year period. The
decrease in operating cash flow of $114.6 million was primarily the result of the Companys repurchase of trade receivables in the amount of $115.5 million. The repurchase was funded out of the proceeds of the June 2003 refinancing. Excluding
the repurchase, cash provided by operating activities was comparable to the prior year period. The effects of lower net income were offset by changes in operating assets and liabilities. Steel inventories declined $11.8 million on increased
structural steel shipments. In the prior year period, a scheduled shutdown to refurbish the Steel production facilities increased prepaid expenses $10.8 million.



Net cash used by investing activities was $7.4 million, compared to $19.6 million in the prior year period. Capital
expenditures for normal replacement and technological upgrades of existing equipment and expansions of the Companys operations excluding major plant expansions was $7.5 million, down $9.9 million from the prior year period.



Net cash provided by financing activities was $100.1 million, compared to
$11.8 million used in the prior year period. The proceeds from the June 2003 refinancing net of issuance and retirement costs funded the repurchase of trade receivables. The Companys quarterly cash dividend of $.075 per common share remained
unchanged from the prior year period.



OTHER
ITEMS



Litigation



In November 1998, Chaparral Steel Company, a 100% owned subsidiary, filed an
action in the District Court of Ellis County, Texas against certain graphite electrode suppliers seeking damages for illegal restraints of trade in the sale of graphite electrodes. During the current quarter the Company obtained a settlement from a
producer of graphite electrodes in the net amount of $4.2 million. The Company has now obtained settlements from all the major producers named in the action and does not anticipate any material future settlements.



Environmental Matters



The Company is subject to federal, state and local environmental laws and regulations concerning, among other matters, air
emissions, furnace dust disposal and wastewater discharge. The Company believes it is in substantial compliance with applicable environmental laws and regulations, however, from time to time the Company receives claims from federal and state
environmental regulatory agencies and entities asserting that the Company is or may be in violation of certain environmental laws and regulations. Based on its experience and the information currently available to it, the Company believes that such
claims will not have a material impact on its financial condition or results of operations. Despite the Companys compliance and experience, it is possible that the Company could be held liable for future charges which might be material but are
not currently known or estimable. In addition, changes in federal or state laws, regulations or requirements or discovery of currently unknown conditions could require additional expenditures by the Company.



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Market Risk



The Company has not historically entered into derivatives or other financial instruments for trading or speculative purposes. Because of the short
duration of the Companys investments, changes in market interest rates would not have a significant impact on their fair value.



The June 2003 refinancing increased the amount of fixed rate debt outstanding and the Companys overall average effective interest rate. The fair
value of the debt will vary as interest rates change.



Effective August 5, 2003, the Company entered into interest rate swaps that change the characteristics of the interest payments on $200 million of the underlying fixed rate debt from fixed-rate payments to short-term LIBOR-based variable
rate payments in order to achieve a mix of interest rates on the Companys long-term debt which, over time, is expected to moderate financing costs. The swaps are sensitive to interest rate changes. For example, if short-term interest rates
increase (decrease) by one percentage point from the date of the refinancing, annual pretax interest expense would increase (decrease) by $2 million.



Critical Accounting Policies



The preparation of financial statements and accompanying notes in conformity with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported. Changes in the facts and circumstances could have a significant impact on the resulting financial statements. The critical accounting policies that affect its more complex judgments and
estimates are described in the Companys Annual Report on Form 10-K for the year ended May 31, 2003.



Effective June 1, 2003, the Company adopted Statement of Accounting Standards No. 143, Accounting for Asset Retirement Obligations, which
applies to legal obligations associated with the retirement of long-lived assets. The Company is required to recognize the fair value of an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can
be made. The Company incurs legal obligations for asset retirement as part of its normal CAC and Steel operations related to land reclamation, plant removal and Resource Conservation and Recovery Act closures. The Company considers asset retirement
obligations to be a critical accounting policy. Determining the amount of an asset retirement liability requires estimating the future cost of contracting with third parties to perform the obligation. The estimate is significantly impacted by, among
other considerations, managements assumptions regarding the scope of the work required, labor costs, inflation rates, market-risk premiums and closure dates.



New Accounting Pronouncements



Effective June 1, 2003, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. For most companies, SFAS No. 145 will require gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather
than as extraordinary items as previously required under SFAS No. 4. Extraordinary treatment will be required for certain extinguishments as provided in APB Opinion No. 30. SFAS No. 145 also amends SFAS No. 13 to require certain modifications to
capital leases be treated as a sale-leaseback and modifies the accounting for sub-leases when the original lessee remains a secondary obligor (or guarantor). Its adoption required that the loss on early retirement of debt incurred in the August 2003
quarter be recognized as an ordinary loss.



Effective June 1,
2003, the Company adopted SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which establishes standards for how an issuer classifies and measures certain financial instruments
with characteristics of both liabilities and equity. The Company has no financial instruments for which a change in classification was required.



In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of Variable Interest Entities,
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. Effective December 1, 2003, the Company will adopt the provisions of Interpretation No. 46. Its adoption is not
expected to have a material impact on the financial statements of the Company.



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Cautionary Statement for Purposes of the Safe Harbor Provisions of the

Private Securities Litigation Reform Act of 1995



Certain statements contained in this quarterly report are forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Such statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Potential risks and
uncertainties include, but are not limited to, the impact of competitive pressures and changing economic and financial conditions on the Companys business, construction activity in the Companys markets, abnormal periods of inclement
weather, changes in the cost of raw materials, fuel and energy, and the impact of environmental laws and other regulations. For further information refer to the Companys Annual Report on Form 10-K for the year ended May 31, 2003.



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Item 4. Controls and Procedures



The
Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the
specified time periods. As of the end of the period covered by this Quarterly Report on Form 10-Q, the Companys Chief Executive Officer and Chief Financial Officer evaluated, with the participation of the Companys management, the
effectiveness of the Companys disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on the evaluation, which disclosed no significant deficiencies or material weaknesses, the Companys Chief
Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective. There were no significant changes in the Companys internal controls over financial reporting that occurred during
the Companys most recent fiscal quarter that have materially affected or is reasonably likely to materially affect the Companys internal control over financial reporting.



PART II. OTHER INFORMATION



Item 1. Legal Proceedings



The
information required by this item is included in the section of the Notes to Consolidated Financial Statements entitled Legal Proceedings and Contingent Liabilities presented in Part I on page 15 and incorporated herein by reference.



Item 6. Exhibits and Reports on Form 8-K



The following exhibits are included herein:



(15.1)
Letter re: Unaudited Interim Financial Information



(31.1)
Certification of Chief Executive Officer



(31.2) Certification
of Chief Financial Officer



(32.1) Section 1350 Certification
of Chief Executive Officer



(32.2) Section 1350 Certification
of Chief Financial Officer



The remaining exhibits have been
omitted because they are not applicable or the information required therein is included elsewhere in the financial statements or notes thereto.



The Registrant did not file any reports on Form 8-K during the three-month period ended August 31, 2003.



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SIGNATURES



Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                 |  |  |  | TEXAS INDUSTRIES, INC.                                                                                      
|---------------- |  |  |  | ------------------------------------------------------------------------------------------------------------
|                 |  | 
|October 14, 2003 |  |  |  | /s/ Richard M. Fowler                                                                                       
|                 |  |  |  | Richard M. Fowler Executive Vice PresidentFinance and Chief Financial Officer (Principal Financial Officer)
|                 |  | 
|October 14, 2003 |  |  |  | /s/ James R. McCraw                                                                                         
|                 |  |  |  | James R. McCraw Vice PresidentAccounting and Information Services (Principal Accounting Officer)           



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INDEX TO EXHIBITS



|Exhibits |  | Page                                                 
|-------- |  | -----------------------------------------------------
|         |  |                                                      
|15.1     |  | Letter re: Unaudited Interim Financial Information   
|         |  |                                                      
|31.1     |  | Certification of Chief Executive Officer             
|         |  |                                                      
|31.2     |  | Certification of Chief Financial Officer             
|         |  |                                                      
|32.1     |  | Section 1350 Certification of Chief Executive Officer
|         |  |                                                      
|32.2     |  | Section 1350 Certification of Chief Financial Officer



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