10-Q 1 txi2014022810q.htm 10-Q TXI 2014.02.28 10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM 10-Q
 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2014
OR 
¨
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
TEXAS INDUSTRIES, INC.
(Exact name of Registrant as specified in its Charter)

Delaware
 
75-0832210
(State or other jurisdiction of
 
(IRS Employer
incorporation or organization)
 
Identification No.)
 
1503 LBJ Freeway, Suite 400,
Dallas, Texas
 
75234-6074
(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  ý    No  ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
ý
Accelerated Filer
¨
Non-accelerated Filer
o
Smaller Reporting Company
¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
There were 28,826,702 shares of the Registrant’s Common Stock, $1.00 par value, outstanding as of March 28, 2014.


INDEX
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
 

- 2 -

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
 
 
 
(Unaudited)
 
 
In thousands except per share
 
February 28,
2014
 
May 31,
2013
ASSETS
 
 
 
 
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents
 
$
47,833

 
$
61,296

Receivables – net
 
126,811

 
126,922

Inventories
 
107,910

 
105,054

Deferred income taxes and prepaid expenses
 
20,057

 
27,294

TOTAL CURRENT ASSETS
 
302,611

 
320,566

PROPERTY, PLANT AND EQUIPMENT
 
 
 
 
Land and land improvements
 
174,781

 
172,780

Buildings
 
51,549

 
50,968

Machinery and equipment
 
1,651,573

 
1,647,460

Construction in progress
 
25,854

 
16,642

 
 
1,903,757

 
1,887,850

Less depreciation and depletion
 
710,902

 
661,454

 
 
1,192,855

 
1,226,396

OTHER ASSETS
 
 
 
 
Goodwill
 
40,072

 
40,575

Real estate and investments
 
31,780

 
29,471

Deferred other charges
 
19,712

 
18,817

 
 
91,564

 
88,863

 
 
$
1,587,030

 
$
1,635,825

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
Accounts payable
 
$
71,584

 
$
69,061

Accrued interest, compensation and other
 
43,237

 
62,336

Current portion of long-term debt
 
2,036

 
1,872

TOTAL CURRENT LIABILITIES
 
116,857

 
133,269

LONG-TERM DEBT
 
656,797

 
657,935

DEFERRED INCOME TAXES AND OTHER CREDITS
 
81,288

 
91,157

SHAREHOLDERS’ EQUITY
 
 
 
 
Common stock, $1 par value; authorized 100,000 shares; issued and outstanding 28,804 and 28,572 shares, respectively
 
28,804

 
28,572

Additional paid-in capital
 
528,754

 
514,560

Retained earnings
 
189,707

 
228,686

Accumulated other comprehensive loss
 
(15,177
)
 
(18,354
)
 
 
732,088

 
753,464

 
 
$
1,587,030

 
$
1,635,825

See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF OPERATIONS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited)

 
 
 
Three months ended
 
Nine months ended
  
 
February 28,
 
February 28,
 
February 28,
 
February 28,
In thousands except per share
 
2014
 
2013
 
2014
 
2013
NET SALES
 
$
207,828

 
$
141,359

 
$
649,802

 
$
483,575

Cost of products sold
 
195,835

 
129,035

 
592,986

 
444,297

GROSS PROFIT
 
11,993

 
12,324

 
56,816

 
39,278

Selling, general and administrative
 
18,264

 
17,056

 
56,471

 
51,679

Merger charges
 
2,863

 
—

 
2,863

 
—

Interest expense
 
17,409

 
7,227

 
52,203

 
22,462

Other income, net
 
(1,696
)
 
(2,091
)
 
(12,959
)
 
(6,614
)
LOSS BEFORE INCOME TAXES FROM CONTINUING OPERATIONS
 
(24,847
)
 
(9,868
)
 
(41,762
)
 
(28,249
)
Income taxes (benefit)
 
(3,078
)
 
(1,355
)
 
(2,783
)
 
(2,151
)
NET LOSS FROM CONTINUING OPERATIONS
 
$
(21,769
)
 
$
(8,513
)
 
$
(38,979
)
 
$
(26,098
)
NET INCOME FROM DISCONTINUED OPERATIONS
 
—

 
2,699

 
—

 
6,504

NET LOSS
 
$
(21,769
)
 
$
(5,814
)
 
$
(38,979
)
 
$
(19,594
)
NET LOSS PER SHARE FROM CONTINUING OPERATIONS:
 
 
 
 
 
 
 
 
Basic
 
$
(0.76
)
 
$
(0.30
)
 
$
(1.36
)
 
$
(0.93
)
Diluted
 
$
(0.76
)
 
$
(0.30
)
 
$
(1.36
)
 
$
(0.93
)
NET INCOME PER SHARE FROM DISCONTINUED OPERATIONS:
 
 
 
 
 
 
 
 
Basic
 
$
—

 
$
0.09

 
$
—

 
$
0.23

Diluted
 
$
—

 
$
0.09

 
$
—

 
$
0.23

NET LOSS PER SHARE:
 
 
 
 
 
 
 
 
Basic
 
$
(0.76
)
 
$
(0.21
)
 
$
(1.36
)
 
$
(0.70
)
Diluted
 
$
(0.76
)
 
$
(0.21
)
 
$
(1.36
)
 
$
(0.70
)
AVERAGE SHARES OUTSTANDING
 
 
 
 
 
 
 
 
Basic
 
28,696

 
28,190

 
28,629

 
28,073

Diluted
 
28,696

 
28,190

 
28,629

 
28,073

See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited)


 
 
Three months ended
 
Nine months ended
 
 
February 28,
 
February 28,
 
February 28,
 
February 28,
In thousands
 
2014
 
2013
 
2014
 
2013
Net loss
 
$
(21,769
)
 
$
(5,814
)
 
$
(38,979
)
 
$
(19,594
)
Other comprehensive income:
 
 
 
 
 
 
 
 
Unrealized actuarial gain (loss) of defined benefit plans net of tax expense (benefit) of $1,813, $0, $1,813 and $(32), respectively
 
3,144

 
—

 
3,144

 
(55
)
Reclassification of actuarial loss of defined benefit plans, net of tax benefit of $(6), $(55) , $(19) and $(355), respectively
 
13

 
96

 
33

 
616

Total other comprehensive income
 
3,157

 
96

 
3,177

 
561

Comprehensive loss
 
$
(18,612
)
 
$
(5,718
)
 
$
(35,802
)
 
$
(19,033
)

See notes to consolidated financial statements.


- 5 -

CONSOLIDATED STATEMENTS OF CASH FLOWS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited)
 
 
 
Nine months ended
 
 
February 28,
 
February 28,
In thousands
 
2014
 
2013
OPERATING ACTIVITIES
 
 
 
 
Net loss
 
$
(38,979
)
 
$
(19,594
)
Adjustments to reconcile net loss to cash provided (used) by operating
activities
 
 
 
 
Depreciation, depletion and amortization
 
58,556

 
42,968

Gain on asset disposals
 
(6,133
)
 
(4,822
)
Deferred income tax expense (benefit)
 
1,755

 
1,025

Stock-based compensation expense
 
5,349

 
7,015

Other – net
 
(9,942
)
 
(7,555
)
Changes in operating assets and liabilities
 
 
 
 
Receivables – net
 
(1,381
)
 
830

Inventories
 
(3,072
)
 
(710
)
Prepaid expenses
 
2,632

 
(2,158
)
Accounts payable and accrued liabilities
 
(9,450
)
 
(7,228
)
Net cash provided (used) by operating activities
 
(665
)
 
9,771

INVESTING ACTIVITIES
 
 
 
 
Capital expenditures – expansions
 
(7,125
)
 
(61,344
)
Capital expenditures – other
 
(26,152
)
 
(17,752
)
Proceeds from asset disposals
 
8,390

 
5,783

Proceeds from insurance contracts, net of premiums paid
 
4,386

 
2,366

Other – net
 
—

 
(67
)
Net cash used by investing activities
 
(20,501
)
 
(71,014
)
FINANCING ACTIVITIES
 
 
 
 
Debt payments
 
(1,373
)
 
(2,236
)
Stock option exercises
 
9,076

 
7,116

Net cash provided by financing activities
 
7,703

 
4,880

Decrease in cash and cash equivalents
 
(13,463
)
 
(56,363
)
Cash and cash equivalents at beginning of period
 
61,296

 
88,027

Cash and cash equivalents at end of period
 
$
47,833

 
$
31,664

See notes to consolidated financial statements.

- 6 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Texas Industries, Inc. and subsidiaries is a leading supplier of heavy construction materials in the southwestern United States through our three business segments: cement, aggregates and concrete. Our principal products are gray portland cement, produced and sold through our cement segment; stone, sand and gravel, produced and sold through our aggregates segment; and ready-mix concrete, produced and sold through our concrete segment. Our facilities are concentrated primarily in Texas, Louisiana and California. When used in these notes the terms “Company,” “we,” “us” or “our” mean Texas Industries, Inc. and subsidiaries unless the context indicates otherwise.
We have changed the name of our "consumer products" segment to "concrete". This change impacts only the name of the segment to better reflect the business activity that occurs within the segment, and does not impact or change the financial information that we report through this segment.
1. 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 notes 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 nine-month period ended February 28, 2014 are not necessarily indicative of the results that may be expected for the year ending May 31, 2014. For further information, refer to the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of Texas Industries, Inc. for the year ended May 31, 2013.
Principles of Consolidation. The consolidated financial statements include the accounts of Texas Industries, Inc. and all subsidiaries except for a joint venture in which the Company has a 40% equity interest. The joint venture is accounted for using the equity method. Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.
Discontinued Operations. The prior period consolidated financial statements in this Form 10-Q reflect discontinued operations as discussed in Note 2 - Discontinued Operations.
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.
Fair Value of Financial Instruments. The estimated fair value of each class of financial instrument as of February 28, 2014 and May 31, 2013 approximates its carrying value except for long-term debt having fixed interest rates. The fair value of our long-term debt is estimated based on broker/dealer quoted market prices, which are level two inputs. As of February 28, 2014, the fair value of our long-term debt, including the current portion, was approximately $762.8 million compared to the carrying amount of $658.8 million. As of May 31, 2013, the fair value of our long-term debt, including the current portion, was approximately $723.2 million compared to the carrying amount of $659.8 million.
Cash and Cash Equivalents. Investments with maturities of less than 90 days when purchased are classified as cash equivalents and consist primarily of money market funds and investment grade commercial paper issued by major corporations and financial institutions.
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 we are aware of a specific customer’s inability to make required payments, specific amounts are added to the reserve.
Environmental Liabilities. We are subject to environmental laws and regulations established by federal, state and local authorities, and make provision for the estimated costs related to compliance when it is probable that an estimable liability has been incurred.
Legal Contingencies. We are a defendant 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 an estimable liability has been incurred.
Inventories. Inventories are stated at the lower of cost or market. We use the last-in, first out (“LIFO”) method to value finished products, work in process and raw material inventories, excluding natural aggregate inventories. We use the average cost method to value natural aggregate finished goods and raw materials, and parts and supplies, which includes emission

- 7 -

allowance credits. Our natural aggregate inventory includes a reserve against volumes in excess of an average twelve-month period of actual sales.
We recognize the emission allowance credits issued by the California Air Resources Board (CARB) at zero cost and average them with the cost of additional credits that we purchase from state approved sources.

Long-lived Assets. Management reviews long-lived assets on a facility by facility basis 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 our products, capital needs, economic trends and other factors. Estimates of future cash flows reflect Management’s belief that it operates in a cyclical industry.
Property, plant and equipment is recorded at cost. Costs incurred to construct certain long-lived assets include capitalized interest which is amortized over the estimated useful life of the related asset. Interest is capitalized during the construction period of qualified assets based on the average amount of accumulated expenditures and the weighted average interest rate applicable to borrowings outstanding during the period. If accumulated expenditures exceed applicable borrowings outstanding during the period, capitalized interest is allocated to projects under construction on a pro rata basis. Provisions for depreciation are computed generally using the straight-line method. Useful lives for our primary operating facilities range from 10 to 25 years with certain cement facility structures having useful lives of 40 years. Provisions for depletion of mineral deposits are computed on the basis of the estimated quantity of recoverable raw materials. The costs of removing overburden and waste materials to access mineral deposits are referred to as stripping costs. All production phase stripping costs are recognized as costs of the inventory produced during the period the stripping costs are incurred. Maintenance and repairs are charged to expense as incurred.
Goodwill and Goodwill Impairment. Management tests goodwill for impairment annually by reporting unit in the fourth quarter of our fiscal year. Management may make optional use of the qualitative assessment provided by the accounting guidance as part of its annual testing. The accounting guidance permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If this is concluded to be the case then management would proceed with the quantitative impairment test using a two-step process. Otherwise, the quantitative impairment test is not required.
The first step of the quantitative impairment test identifies potential impairment by comparing the fair value of a reporting unit to its carrying value including goodwill. In applying a fair-value based test, estimates are made of the expected future cash flows to be derived from the 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 our products, capital needs, economic trends and other factors. If the carrying value of the reporting unit exceeds its fair value, the second step of the quantitative impairment test is performed to measure the amount of impairment loss, if any. The second step of the impairment test compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying value of the reporting unit goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination.

Goodwill resulting primarily from the acquisition of ready-mix operations in Texas and Louisiana and identified with our concrete operations has a carrying value of $40.1 million at February 28, 2014 and $40.6 million at May 31, 2013.
Income Taxes. Texas Industries, Inc. (the parent company) joins in filing a consolidated return with its subsidiaries based on federal and certain state tax filing requirements. Certain subsidiaries also file separate state income tax returns. 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. We recognize and classify deferred income taxes using an asset and liability method, whereby deferred tax assets and liabilities are recognized based on the tax effect of temporary differences between the financial statements and the tax basis of assets and liabilities, as measured by current enacted tax rates.
We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during subsequent years. Adjustments based on filed returns are generally recorded in the year the tax returns are filed.

The amount of income tax we pay is subject to ongoing audits by federal and state authorities which may result in proposed assessments. Our estimate of the potential outcome for any uncertain tax issue is highly judgmental. We account for these uncertain tax issues using a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return. The first step determines if the weight of available evidence indicates that it is more likely than not that

- 8 -

the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step measures the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. We adjust reserves for our uncertain tax positions due to changing facts and circumstances, the closing of a tax audit, judicial rulings, or realization of earnings or deductions that differ from our estimates. To the extent that the final outcome of these matters differs from the amounts recorded, such differences generally will impact our provision for income taxes in the period in which such a determination is made. Our provisions for income taxes include the impact of reserve provisions and changes to reserves that are considered appropriate including related interest and penalties.
Management reviews our deferred tax position and in particular our deferred tax assets whenever circumstances indicate that the assets may not be realized in the future and recognizes a valuation allowance unless such deferred tax assets are deemed more likely than not to be recoverable. The ultimate realization of these deferred tax assets is dependent upon various factors including the generation of taxable income during future periods. In determining the need for a valuation allowance, we consider such factors as historical earnings, the reversal of existing temporary differences, prior taxable income (if carryback is permitted under the tax law), prudent and feasible tax planning strategies, and future taxable income. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets valuation allowance would be charged to earnings in the period in which we make such a determination. If we later determine that it is more likely than not that the net deferred tax assets would be realized, we would reverse the applicable portion of the previously provided valuation allowance as an adjustment to earnings at such time. See further discussion in Note 9.
Real Estate and Investments. Surplus real estate and real estate acquired for development of high quality industrial, office or multi-use parks totaled $6.6 million at February 28, 2014 and $7.3 million at May 31, 2013.
Investments include life insurance contracts purchased in connection with certain of our benefit plans. The contracts, recorded at their net cash surrender value, totaled $1.6 million (net of distributions of $97.6 million plus accrued interest and fees) at February 28, 2014 and $1.1 million (net of distributions of $99.8 million plus accrued interest and fees) at May 31, 2013. We can elect to receive distributions chargeable against the cash surrender value of the policies in the form of borrowings or withdrawals or we can elect to surrender the policies and receive their net cash surrender value.
Investments include the long-term portion of a note receivable totaling $6.7 million at February 28, 2014 and $6.2 million at May 31, 2013 in connection with the sale of our expanded shale and clay lightweight aggregates manufacturing businesses related to certain inventories.
Investment in Joint Venture. We own a 40% equity interest in a joint venture based in Waco, Texas that operates ready-mix plants serving the central Texas market. The day to day business operations are managed by the 60% partner in the venture. We supply cement to the joint venture. The debt of the joint venture is secured by the underlying assets of the joint venture. In addition, our partner has guaranteed 100% of the debt of the joint venture. We were released in the second quarter of fiscal year 2014 from our 50% guarantee of the debt of the joint venture. See further discussion of joint venture debt under Guarantee of Joint Venture Debt in Note 4.
Our investment totaled $16.9 million at February 28, 2014 and $14.9 million at May 31, 2013. Our equity in income of the joint venture was $2.6 million and $1.6 million for the nine-month periods ended February 28, 2014 and 2013, respectively.
Deferred Other Charges. Deferred other charges totaled $19.7 million at February 28, 2014 and $18.8 million at May 31, 2013. These balance totals include debt issuance costs of $9.7 million at February 28, 2014 and $11.1 million at May 31, 2013, which amortize over the term of the related debt. Also, these charges include $5.7 million and $2.9 million representing various miscellaneous receivables as of February 28, 2014 and May 31, 2013, respectively.
Deferred Taxes and Other Credits. Deferred taxes and other credits totaled $81.3 million at February 28, 2014 and $91.2 million at May 31, 2013 and are composed primarily of liabilities related to our deferred income taxes, retirement plans, deferred compensation agreements and asset retirement obligations.

Asset Retirement Obligations. We record a liability for legal obligations associated with the retirement of our long-lived assets in the period in which it is incurred if an estimate of fair value of the obligation can be made. The discounted fair value of the obligations incurred in each period is added to the carrying amount of the associated assets and depreciated over the lives of the assets. The liability accretes at the end of each period through a charge to operating expense. A gain or loss on settlement is recognized if the obligation is settled for other than the carrying amount of the liability.
We incur legal obligations for asset retirement as part of our normal operations related to land reclamation, plant removal and Resource Conservation and Recovery Act closures. 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,

- 9 -

among other considerations, management’s assumptions regarding the scope of the work required, labor costs, inflation rates, market-risk premiums and closure dates.
Changes in asset retirement obligations are as follows:
 
 
Nine months ended
 
 
February 28,
 
February 28,
In thousands
 
2014
 
2013
Balance at beginning of period
 
$
2,653

 
$
3,879

Additions
 
83

 
219

Accretion expense
 
212

 
130

Settlements
 
(354
)
 
(1,617
)
Balance at end of period
 
$
2,594

 
$
2,611


Accumulated Other Comprehensive Loss. Amounts recognized in accumulated other comprehensive loss represent adjustments related to a defined benefit retirement plan and a postretirement health benefit plan covering approximately 600 employees and retirees of our California cement subsidiary. The amounts totaled $15.2 million (net of tax benefit of $0.7 million) at February 28, 2014 and $18.4 million (net of tax benefit of $2.5 million) at May 31, 2013. We report the effect of significant reclassifications out of accumulated other comprehensive loss on the respective line items in net income if the amount being reclassified represents the entirety of an item. The pre-tax reclassification for the nine-month periods ended February 28, 2014, and 2013 were less than $0.1 million and $1.0 million, respectively, and affected salaries and employee benefits expense which is allocated to costs of products sold and to selling, general, and administrative in the consolidated statement of operations.
Net Sales. Sales are recognized when title has transferred and products are delivered. We include delivery fees in the amount we bill customers to the extent needed to recover our cost of freight and delivery. Net sales are presented as revenues and include these delivery fees.
Other Income. Routine sales of surplus operating assets and real estate resulted in gains of $0.3 million and $1.9 million in the three-month periods ended February 28, 2014 and 2013, respectively, and $6.1 million and $4.8 million in the nine-month periods ended February 28, 2014 and 2013, respectively. In addition, other income includes earnings from a joint venture of $0.8 million and $0.5 million in the three-month periods ended February 28, 2014 and 2013, respectively, and $2.6 million and $1.6 million in the nine-month periods ended February 28, 2014 and 2013, respectively.
Merger Charges. Merger related expenses were $2.9 million for the three and nine-month periods ended February 28, 2014. See Note 13 - Merger Agreement.
Stock-based Compensation. We have provided stock-based compensation to employees and non-employee directors in the form of non-qualified and incentive stock options, restricted stock, restricted stock units, stock appreciation rights, deferred compensation agreements and stock awards. The Company began issuing restricted stock units subject to service-based only conditions for the first time to employees in the prior fiscal year. In addition, the Company issued restricted stock units subject to market- and service-based conditions for the first time to employees during the nine-month period ended February 28, 2014.
We use the Black-Scholes option-pricing model to determine the fair value of stock options and stock appreciation rights granted as of the date of grant. Options with graded vesting are valued as single awards and the related compensation cost is recognized using a straight-line attribution method over the shorter of the vesting period or required service period adjusted for estimated forfeitures.
We use the closing stock price on the date of grant to determine the fair value of restricted stock units subject to service-based only conditions. The restricted stock units subject to service-based only conditions have cliff vesting at the end of a four year term, and we valued them as a single award with the related compensation cost recognized using a straight-line method over the vesting period adjusted for estimated forfeitures.
We use a Monte Carlo simulation to determine the fair value of restricted stock units subject to market- and service-based conditions. The restricted stock units subject to market- and service-based conditions have cliff vesting at the end of a four year term subject to the achievement of market conditions, and we valued them as a single award with the related compensation cost recognized using a straight-line method over the vesting period adjusted for estimated forfeitures.

- 10 -

We used the closing stock price on the date of grant to determine the fair value of stock awards and restricted stock awards. Prior to our executing the January 4, 2013 stock appreciation rights agreement and the deferred compensation agreements, we recorded a liability, which was included in other credits, for deferred compensation agreements and stock awards expected to be settled in cash, based on their fair value at the end of each period until such awards are paid. See further discussion in Note 7.

Earnings Per Share (“EPS”). Income or loss allocated to common shareholders adjusts net income or loss for the participation in earnings of unvested restricted shares outstanding.
Basic weighted-average number of common shares outstanding during the period includes contingently issuable shares and excludes outstanding unvested restricted shares. Contingently issuable shares outstanding at February 28, 2014 and 2013, relate to deferred compensation agreements in which directors elected to defer their fees. The deferred compensation is denominated in shares of our common stock and issued in accordance with the terms of the agreement subsequent to retirement or separation from us. The shares are considered contingently issuable because the director has an unconditional right to the shares to be issued.
Diluted weighted-average number of common shares outstanding during the period adjusts basic weighted-average shares for the dilutive effect of stock options, restricted shares, restricted share units and awards.
Basic and diluted EPS are calculated as follows:

 
 
Three months ended
 
Nine months ended
 
 
February 28,
 
February 28,
 
February 28,
 
February 28,
In thousands except per share
 
2014
 
2013
 
2014
 
2013
Earnings
 
 
 
 
 
 
 
 
Net loss from continuing operations
 
$
(21,769
)
 
$
(8,513
)
 
$
(38,979
)
 
$
(26,098
)
Net income from discontinued operations
 
$
—

 
$
2,699

 
$
—

 
$
6,504

Loss allocated to common shareholders
 
$
(21,769
)
 
$
(5,814
)
 
$
(38,979
)
 
$
(19,594
)
Shares
 
 
 
 
 
 
 
 
Weighted-average shares outstanding
 
28,691

 
28,200

 
28,631

 
28,086

Contingently issuable shares
 
5

 
4

 
5

 
3

Unvested restricted shares
 
—

 
(14
)
 
(7
)
 
(16
)
Basic weighted-average shares
 
28,696

 
28,190

 
28,629

 
28,073

Diluted weighted-average shares (1)
 
28,696

 
28,190

 
28,629

 
28,073

Net loss per share from continuing operations
 
 
 
 
 
 
 
 
Basic
 
$
(0.76
)
 
$
(0.30
)
 
$
(1.36
)
 
$
(0.93
)
Diluted
 
$
(0.76
)
 
$
(0.30
)
 
$
(1.36
)
 
$
(0.93
)
Net income per share from discontinued operations
 
 
 
 
 
 
 
 
Basic
 
$
—

 
$
0.09

 
$
—

 
$
0.23

Diluted
 
$
—

 
$
0.09

 
$
—

 
$
0.23

Net loss per share
 
 
 
 
 
 
 
 
Basic
 
$
(0.76
)
 
$
(0.21
)
 
$
(1.36
)
 
$
(0.70
)
Diluted
 
$
(0.76
)
 
$
(0.21
)
 
$
(1.36
)
 
$
(0.70
)
(1)    Shares excluded due to antidilutive effect of stock options, restricted shares and awards
 
634

 
583

 
595

 
409


Recently Issued Accounting Guidance. In July 2013, the Financial Accounting Standards Board issued new accounting guidance on the presentation of unrecognized tax benefits. This new guidance requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The new guidance becomes effective for us in our first quarter of fiscal 2015 with earlier adoption permitted, and

- 11 -

should be applied prospectively with retroactive application permitted. We are currently evaluating the impact of the new guidance, and do not expect it to have a material effect on our consolidated financial statements.

2. Discontinued Operations

On March 22, 2013, our subsidiaries exchanged their expanded shale and clay lightweight aggregates manufacturing business for the ready-mix concrete business of subsidiaries of Trinity Industries, Inc. in east Texas and southwest Arkansas. Pursuant to the agreements, we transferred our expanded shale and clay manufacturing facilities in Streetman, Texas; Boulder, Colorado and Frazier Park, California; and our DiamondPro® product line in exchange for 42 ready-mix concrete plants stretching from Texarkana to Beaumont in east Texas and in southwestern Arkansas, two aggregate distribution facilities in Beaumont and Port Arthur, Texas, and related assets.

The following table summarizes the revenue, earnings before and net of income tax expense on all discontinued operations for the three- and nine-month periods ended February 28, 2013:
 
Three months ended
 
Nine months ended
 
 
February 28,
 
February 28,
In thousands
 
2013
 
2013
Revenue from discontinued operations
 
$
13,844

 
$
42,758

Income from discontinued operations, before taxes
 
$
4,206

 
$
10,070

Income from discontinued operations, net of taxes
 
$
2,699

 
$
6,504


3. Working Capital
Working capital totaled $185.8 million at February 28, 2014 compared to $187.3 million at May 31, 2013. Selected components of working capital are summarized below.
Receivables-net consist of:
 
 
 
February 28,
 
May 31,
In thousands
 
2014
 
2013
Trade notes and accounts receivable
 
$
126,207

 
$
126,070

Other
 
604

 
852

 
 
$
126,811

 
$
126,922

Trade notes and accounts receivable are presented net of allowances for doubtful receivables of $3.5 million at February 28, 2014 and $2.3 million at May 31, 2013. Provisions for bad debts charged to expense was $1.4 million and $0.9 million in the nine-month periods ended February 28, 2014 and 2013, respectively. Uncollectible accounts written off totaled $0.1 million and $0.5 million in the nine-month periods ended February 28, 2014 and 2013, respectively.
Inventories consist of:
 
 
February 28,
 
May 31,
In thousands
 
2014
 
2013
Finished products
 
$
6,489

 
$
5,267

Work in process
 
8,676

 
8,630

Raw materials
 
20,971

 
20,090

Total inventories at LIFO cost
 
36,136

 
33,987

Natural aggregate finished products
 
19,753

 
21,836

Raw materials
 
265

 
378

Parts and supplies
 
51,756

 
48,853

Total inventories at average cost
 
71,774

 
71,067

Total inventories
 
$
107,910

 
$
105,054


- 12 -

All inventories are stated at the lower of cost or market. Finished products, work in process and raw material inventories, excluding natural aggregate inventories, are valued using the last-in, first-out (“LIFO”) method. Natural aggregate finished products and raw material inventories and parts and supplies inventories, which includes emission allowance credits, are valued using the average cost method. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory valuation. If the average cost method (which approximates current replacement cost) had been used for all of these inventories, inventory values would have been higher by $21.7 million at February 28, 2014 and $20.7 million at May 31, 2013.

Accrued interest, compensation and other consists of:
 
 
February 28,
 
May 31,
In thousands
 
2014
 
2013
Interest
 
$
2,761

 
$
17,801

Compensation and employee benefits
 
15,503

 
15,439

Casualty insurance claims
 
16,717

 
15,890

Income taxes
 
2,359

 
4,666

Property taxes and other
 
5,897

 
8,540

 
 
$
43,237

 
$
62,336

4. Long-Term Debt
Long-term debt consists of:
 
 
February 28,
 
May 31,
In thousands
 
2014
 
2013
9.25% Senior notes due 2020 issued August 10, 2010 at par value
 
$
650,000

 
$
650,000

Other
 
6,594

 
7,505

 
 
656,594

 
657,505

Capital lease obligations
 
1,994

 
2,057

Other contractual obligations
 
245

 
245

 
 
658,833

 
659,807

Less current portion
 
2,036

 
1,872

 
 
$
656,797

 
$
657,935

Senior Secured Revolving Credit Facility. On August 25, 2011, we amended and restated our credit agreement and the associated security agreement. The credit agreement continues to provide for a $200 million senior secured revolving credit facility with a $50 million sub-limit for letters of credit and a $15 million sub-limit for swing line loans. The credit facility matures on August 25, 2016. Amounts drawn under the credit facility bear annual interest either at the LIBOR rate plus a margin of 2.00% to 2.75% or at a base rate plus a margin of 1.0% to 1.75%. The base rate is the higher of the federal funds rate plus 0.5%, the prime rate established by Bank of America, N.A. or the one-month LIBOR rate plus 1.0%. The interest rate margins are determined based on the Company’s fixed charge coverage ratio. The commitment fee calculated on the unused portion of the credit facility ranges from 0.375% to 0.50% per year based on the Company’s average daily loan balance. We may terminate the credit facility at any time.
The amount that can be borrowed under the credit facility is limited to an amount called the borrowing base. The borrowing base may be less than the $200 million stated principal amount of the credit facility. The borrowing base is calculated based on the value of our accounts receivable, inventory and mobile equipment in which the lenders have a security interest. In addition, by mortgaging tracts of its real property to the lenders, the Company may increase the borrowing base by an amount beginning at $20 million and declining to $10.7 million at the maturity of the credit facility.
The borrowing base under the agreement was $140.7 million as of February 28, 2014. We are not required to maintain any financial ratios or covenants unless an event of default occurs or the unused portion of the borrowing base is less than $25.0 million, in which case we must maintain a fixed charge coverage ratio of at least 1.0 to 1.0. At February 28, 2014, our fixed charge coverage ratio was .92 to 1.0. Given this ratio, we may use only $115.7 million of the borrowing base as of such date. No borrowings were outstanding at February 28, 2014; however, $31.2 million of the borrowing base was used to support letters of credit. As a result, the maximum amount we could borrow as of February 28, 2014 was $84.5 million.

- 13 -

All of our consolidated subsidiaries have guaranteed our obligations under the credit facility. The credit facility is secured by first priority security interests in all or most of our existing and future consolidated accounts receivable, inventory, equipment, intellectual property and other personal property, and in all of our equity interests in present and future domestic subsidiaries and 66% of the equity interest in any future foreign subsidiaries, if any.

The credit agreement contains a number of covenants restricting, among other things, prepayment or redemption of our senior notes, distributions and dividends on and repurchases of our capital stock, acquisitions and investments, indebtedness, liens and affiliate transactions. We are permitted to pay cash dividends on our common stock as long as the credit facility is not in default, the fixed charge coverage ratio is greater than 1.0 to 1.0 and borrowing availability under the borrowing base is more than $40 million. When our fixed charge coverage ratio is less than 1.0 to 1.0, we are permitted to pay cash dividends on our common stock not to exceed $2.5 million in any single instance (which shall not occur more than four times in any calendar year) or $10 million in the aggregate during any calendar year as long as the credit facility is not in default and borrowing availability is more than the greater of $60 million or 30% of the aggregate commitments of all lenders. For this purpose, borrowing availability is equal to the borrowing base less the amount of outstanding borrowings less the amount used to support letters of credit. We were in compliance with all of our loan covenants as of February 28, 2014.
9.25% Senior Notes. On August 10, 2010, we sold $650 million aggregate principal amount of our 9.25% senior notes due 2020 at an offering price of 100%. The notes were issued under an indenture dated as of August 10, 2010. The net proceeds were used to purchase or redeem all of our outstanding 7.25% senior notes due 2013, with additional proceeds available for general corporate purposes.
At February 28, 2014, we had $650 million aggregate principal amount of 9.25% senior notes outstanding. Under the indenture, at any time on or prior to August 15, 2015, we may redeem the notes at a redemption price equal to the sum of the principal amount thereof, plus accrued interest and a make-whole premium. On and after August 15, 2015, we may redeem all or a part of the notes at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest if redeemed during the twelve-month period beginning on August 15 of the years indicated below:
 
Year
 
Percentage
2015
 
104.625
%
2016
 
103.083
%
2017
 
101.542
%
2018 and thereafter
 
100.000
%
We may be required to offer to purchase the notes at a purchase price equal to 101% of the principal amount, plus accrued interest, if we experience a change of control.
All of our consolidated subsidiaries have unconditionally guaranteed the 9.25% senior notes. The indenture governing the notes contains affirmative and negative covenants that, among other things, limit our and our subsidiaries’ ability to pay dividends on or redeem or repurchase stock, make certain investments, incur additional debt or sell preferred stock, create liens, restrict dividend payments or other payments from subsidiaries to the Company, engage in consolidations and mergers or sell or transfer assets, engage in sale and leaseback transactions, engage in transactions with affiliates, and sell stock in our subsidiaries. We are not required to maintain any affirmative financial ratios or covenants. We were in compliance with all of our covenants as of February 28, 2014.
Other. Principal payments due on long-term debt, excluding operating lease and other contract obligations, during each of the five years subsequent to February 28, 2014 are $2.0 million, $2.0 million, $2.0 million, $0.9 million and $0.2 million. The total amount of interest incurred was $17.4 million and $17.4 million in the three-month periods ended February 28, 2014 and 2013, of which $10.2 million was capitalized for the three-month period ended February 28, 2013. The total amount of interest incurred was $52.2 million and $51.9 million in the nine-month periods ended February 28, 2014 and 2013, respectively, of which 29.4 million was capitalized in the nine-month period ended February 28, 2013. The total amount of interest paid in cash was $67.0 million and $66.0 million in the nine-month periods ended February 28, 2014 and 2013, respectively.
Guarantee of Joint Venture Debt. We have been released from our 50% guarantee of the joint venture’s debt, which was refinanced in November, 2013. The joint venture was in compliance with all the terms of the debt as of February 28, 2014. See further discussion of the joint venture under Investment in Joint Venture in Note 1.


5. Commitments

- 14 -

There have been no significant changes from what was reported in our Annual Report on Form 10-K for the year end May 31, 2013.
6. Shareholders’ Equity
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 40,000 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. No shares of $5 Cumulative Preferred Stock or Series B Junior Participating Preferred Stock were outstanding as of February 28, 2014.
7. Stock-Based Compensation Plans
The Texas Industries, Inc. 2004 Omnibus Equity Compensation Plan (the “2004 Plan”) provides that, in addition to other types of awards, non-qualified and incentive stock options to purchase Common Stock may be granted to employees and non-employee directors at market prices at date of grant. This plan also provides for the granting of restricted stock units ("RSUs").
Options become exercisable in installments beginning one year after the date of grant and expire 10 years after the date of grant. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model. Options with graded vesting are valued as single awards and the compensation cost recognized using a straight-line attribution method over the shorter of the vesting period or required service period adjusted for estimated forfeitures. No options were granted during the nine-month period ended February 28, 2014.
 
Expected volatility is based on an analysis of historical volatility of our common stock. Expected option term is the period of time that options granted are expected to be outstanding and is derived by analyzing the historical option exercise experience of our optionees. Risk-free interest rate is determined using the implied yield currently available for zero coupon U.S. treasury issues with a remaining term equal to the expected term of the option. Expected dividend yield is based on the approved annual dividend rate in effect and the market price of our common stock at the time of grant.

A summary of option transactions for the nine-month period ended February 28, 2014, follows:
 
 
Shares Under
Option
 
Weighted-Average
Option Price
Outstanding at May 31, 2013
 
1,508,533

 
$
40.68

Exercised
 
(216,825
)
 
$
41.79

Canceled
 
(28,383
)
 
$
62.86

Outstanding at February 28, 2014
 
1,263,325

 
$
39.99

Exercisable at February 28, 2014
 
880,365

 
$
42.62


The following table summarizes information about stock options outstanding as of February 28, 2014.
 
 
Range of Exercise Prices
 
 
$16.04 - $29.38
 
$33.57 - $48.60
 
$50.63 - $70.18
Options outstanding
 
 
 
 
 
 
Shares outstanding
 
432,764

 
530,561

 
300,000

Weighted-average remaining life in years
 
6.88

 
5.38

 
2.83

Weighted-average exercise price
 
$
27.83

 
$
39.73

 
$
57.98

Options exercisable
 
 
 
 
 
 
Shares exercisable
 
232,604

 
347,761

 
300,000

Weighted-average remaining life in years
 
6.03

 
4.74

 
2.83

Weighted-average exercise price
 
$
26.51

 
$
40.16

 
$
57.96



- 15 -

Outstanding options expire on various dates up to January 11, 2022. As of February 28, 2014, there were 2,697,646 shares available for future awards under the 2004 Plan.
As of February 28, 2014, the aggregate intrinsic value (the difference in the closing market price of our common stock of $84.90 and the exercise price to be paid by the optionee) of stock options outstanding was $56.7 million. The aggregate intrinsic value of exercisable stock options at that date was $37.2 million. The total intrinsic value for options exercised (the difference in the market price of our common stock on the exercise date and the price paid by the optionee to exercise the option) was $5.8 million and $5.3 million for the three-month periods ended February 28, 2014 and 2013, respectively and $6.6 million and $6.3 million for the nine-month periods ended February 28, 2014 and 2013, respectively.
We began issuing RSUs subject to service-based only conditions to employees in fiscal 2013. In the nine-month period ended February 28, 2014, we began issuing RSUs subject to market- and service-based conditions to employees. All RSUs vest at the end of a four year term subject to achievement of market conditions for those RSUs with market conditions. We determine the fair value of RSUs subject to service-based only conditions using the closing stock price on the date of grant, and value them as a single award with the related compensation cost recognized using a straight-line method over the vesting period, adjusted for estimated forfeitures. We determine the fair value of RSUs subject to market- and service-based conditions using a Monte Carlo simulation, and value them as a single award with the related compensation cost recognized using a straight-line method over the vesting period, adjusted for estimated forfeitures. Employees received 85,219 RSUs during the nine-month period ended February 28, 2014 with a closing stock price on the date of grant of $70.68, of which 54,512 are market-based awards and the remaining are service-based awards.
We have provided additional stock-based compensation to employees and directors under stock appreciation rights contracts, deferred compensation agreements, restricted stock payments. At February 28, 2014, outstanding stock appreciation rights totaled 133,315 shares and deferred compensation agreements to be settled in common stock totaled 5,495 shares.
Common stock totaling 4.0 million shares at February 28, 2014 have been reserved for the settlement of stock-based compensation.

Total stock-based compensation included in selling, general and administrative expense was $1.4 million and $2.7 million in the three-month periods ended February 28, 2014 and 2013. Total stock-based compensation included in selling, general and administrative expense was $5.4 million, which included $1.0 million in stock grants to the Company's Directors in the nine-month period ended February 28, 2014 and $7.0 million in the nine-month period ended February 28, 2013.

Prior to our executing the January 4, 2013 stock appreciation rights agreement and the deferred compensation agreements, the impact of changes in our company's stock price on stock-based awards previously accounted for as liabilities increased stock-based compensation $1.0 million in the three-month period ended February 28, 2013 and $1.7 million in the nine-month period ended February 28, 2013.
No tax expense or benefit was recognized for stock-based compensation in our statement of operations in the nine-month period ended February 28, 2014, and less than $0.1 million was recognized in the nine-month period ended February 28, 2013.
As of February 28, 2014, the total unrecognized stock-based compensation expense was $12.6 million. Stock-based compensation expense expected to be recognized in the twelve-month periods ending February 28, 2015 is $4.9 million, $4.1 million in 2016, $3.1 million in 2017 and $0.5 million in 2018.
8. Retirement Plans
Riverside Defined Benefit Plans. Approximately 600 employees and retirees of our subsidiary, Riverside Cement Company, are covered by a defined benefit pension plan and a postretirement health benefit plan. Unrecognized prior service costs and actuarial gains or losses for these plans are recognized in a systematic manner over the remaining service periods of active employees expected to receive benefits under these plans. The expenses associated with the defined benefit pension plan and postretirement health benefit plan are included in the computation of total employee benefit cost which is allocated to costs of products sold and to selling, general, and administrative in the consolidated statement of operations. The expense (benefits) associated with these plans for the three-month and nine-month periods ended February 28, 2014 and 2013, was as follows:
 

- 16 -

 
 
Three months ended
 
Nine months ended
 
 
February 28,
 
February 28,
 
February 28,
 
February 28,
In thousands
 
2014
 
2013
 
2014
 
2013
Defined benefit pension plan
 
 
 
 
 
 
 
 
Service cost
 
$
—

 
$
61

 
$
—

 
$
277

Interest cost
 
683

 
635

 
2,049

 
1,978

Expected return on plan assets
 
(851
)
 
(770
)
 
(2,553
)
 
(2,288
)
Amortization of net actuarial loss
 
153

 
217

 
461

 
1,165

 
 
$
(15
)
 
$
143

 
$
(43
)
 
$
1,132

Postretirement health benefit plan
 
 
 
 
 
 
 
 
Service cost
 
$
25

 
$
27

 
$
75

 
$
81

Interest cost
 
72

 
88

 
216

 
264

Amortization of prior service cost
 
(193
)
 
(195
)
 
(581
)
 
(581
)
Amortization of net actuarial loss
 
59

 
129

 
172

 
387

 
 
$
(37
)
 
$
49

 
$
(118
)
 
$
151

The Riverside postretirement health benefit plan ("Benefit Plan") was amended effective January 1, 2014.  This amendment discontinued medical coverage for all retirees and the subsidy for Medicare eligible retirees.  The Benefit Plan continues to provide a subsidy to retirees not eligible for Medicare. 
The Riverside defined benefit pension plan (“Pension Plan”) was amended during the first quarter of fiscal year 2013. This amendment provided for the cessation of all benefit accruals under the Pension Plan effective December 31, 2012 and the Pension Plan was frozen as of that date. The amendment was designed to reduce future pension costs and provides that, effective December 31, 2012, all future benefit accruals under the Pension Plan will automatically cease for all participants, and the accrued benefits under the Pension Plan will be determined and frozen as of that date.

Financial Security Defined Benefit Plans. Substantially all of our executive and certain managerial employees are covered by a series of financial security plans that are non-qualified defined benefit plans. The financial security plans require deferral of a portion of a participant’s salary and provide retirement, death and disability benefits to participants. The financial security plans are unfunded and benefits are paid as they become due. Actuarial gains or losses are recognized when incurred. The expenses associated with the financial security plan are included in the computation of total employee benefit cost which is allocated to costs of products sold and to selling, general, and administrative in the consolidated statement of operations. The costs of this plan for the three-month and nine-month periods ended February 28, 2014 and 2013, was as follows:
 
 
 
Three months ended
 
Nine months ended
 
 
February 28,
 
February 28,
 
February 28,
 
February 28,
In thousands
 
2014
 
2013
 
2014
 
2013
Service cost
 
$
536

 
$
593

 
$
1,608

 
$
1,778

Interest cost
 
609

 
591

 
1,827

 
1,773

 
 
$
1,145

 
$
1,184

 
$
3,435

 
$
3,551


The financial security defined benefit plans were amended during the second quarter of fiscal year 2013. This amendment provided that effective December 31, 2012 the plans were frozen.
9. Income Taxes
Income taxes for the interim periods ended February 28, 2014 and 2013 have been included in the accompanying financial statements on the basis of an estimated annual rate. The tax rate differs from the 35% federal statutory corporate rate primarily due to percentage depletion that is tax deductible, state income taxes and valuation allowances against deferred tax assets. The estimated annualized rate is 5.4% for fiscal year 2014 compared to 7.9% for fiscal year 2013. We received income tax refunds of $0.4 million in the nine-month period ended February 28, 2014 and none in the nine-month period ended February 28, 2013. We made no income tax payments in the nine-month periods ended February 28, 2014 and 2013.
Net deferred tax assets totaled $5.0 million at February 28, 2014 and $6.7 million at May 31, 2013. Net deferred tax assets classified as current were $14.2 million at February 28, 2014 and $18.8 million at May 31, 2013. Management reviews

- 17 -

our deferred tax position and in particular our deferred tax assets whenever circumstances indicate that the assets may not be realized in the future and records a valuation allowance unless such deferred tax assets are deemed more likely than not to be recoverable. The ultimate realization of these deferred tax assets depends upon various factors including the generation of taxable income during future periods. The Company’s deferred tax assets exceeded deferred tax liabilities as of February 28, 2014 and May 31, 2013 primarily as a result of recent losses. Management has concluded that the sources of taxable income we are permitted to consider do not assure the realization of the entire amount of our net deferred tax assets. Accordingly, a valuation allowance is required due to the uncertainty of realizing the deferred tax assets. We will continue to record additional valuation allowance against additions to our net deferred tax assets for fiscal year 2014 until management believes it is more likely than not the deferred tax assets will be realized.
The amount of income tax we pay is subject to ongoing audits by federal and state authorities which may result in proposed assessments. We adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit, judicial rulings, refinement of estimates, or realization of earnings or deductions that differ from our estimates. To the extent that the final outcome of a matter differs from the amount recorded, such difference generally will impact our provision for income taxes in the period that includes its final resolution. Reserves for uncertain tax positions including related interest and penalties were not material at February 28, 2014 or May 31, 2013.
In addition to our federal income tax return, we file income tax returns in various state jurisdictions. We are no longer subject to income tax examinations by federal and state tax authorities for years prior to 2009. The Internal Revenue Service completed their review in fiscal year 2013 of our federal income tax returns for 2007 through 2010 resulting in no adjustments.

10. Legal Proceedings and Contingent Liabilities

In February 2014, following the announcement of the proposed merger between the Company and Martin Marietta Materials, Inc. (“Martin Marietta”), a purported stockholder of the Company filed a putative class action lawsuit against the Company and members of its board, and against Martin Marietta and one of its affiliates, in the United States District Court for the Northern District of Texas, captioned Maxine Phillips, Individually and on Behalf of all Others Similarly Situated v. Texas Industries, Inc., et al., Case 3:14-cv-00740-B.  The plaintiff alleges in an amended complaint, among other things, (i) that members of the Company’s board breached their fiduciary duties to  stockholders by failing to fully disclose material information regarding the proposed transaction and by adopting the merger agreement for inadequate consideration and pursuant to an inadequate process, (ii) that Martin Marietta and one of its affiliates aided and abetted the Company’s board in their alleged breaches of fiduciary duty, and (iii) that the registration statement filed with the Securities and Exchange Commission in connection with the merger contains certain material misstatements and omissions in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934.  The plaintiff seeks, among other things, injunctive relief enjoining the Company and Martin Marietta from proceeding with the merger, rescission in the event that the merger is consummated, damages and an award of attorneys’ fees and other fees and costs.  The Company believes that the claims are without merit.
We are subject to federal, state and local environmental laws, regulations and permits concerning, among other matters, air emissions and wastewater discharge. We intend to comply with these laws, regulations and permits. However, from time to time we receive claims from federal and state environmental regulatory agencies and entities asserting that we are or may be in violation of certain of these laws, regulations and permits, or from private parties alleging that our operations have injured them or their property. It is possible that we 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 us.
In March 2008, the South Coast Air Quality Management District, or SCAQMD, informed one of our subsidiaries, Riverside Cement Company (Riverside), that it believed that operations at the Crestmore cement plant in Riverside, California caused the level of hexavalent chromium, or chrome 6, in the air in the vicinity of the plant to be elevated above ambient air levels. Chrome 6 has been identified by the State of California as a carcinogen. Riverside immediately began taking steps, in addition to its normal dust control procedures, to reduce dust from plant operations and eliminate the use of open clinker stockpiles. In February 2008, the SCAQMD placed an air monitoring station at the downwind property line closest to the open clinker stockpiles. In the SCAQMD’s first public report of the results of its monitoring, over the period of February 12 to April 9, 2008, the average level of chrome 6 was 2.43 nanograms per cubic meter, or ng/m³. Since that time, the average level has decreased. The average levels of chrome 6 reported by the SCAQMD at all of the air monitoring stations in areas around the plant, including the station at the property line, are below 1.0 ng/m³ over the entire period of time it has operated the stations. The SCAQMD compared the level of exposure at the air monitor on our property line with the following employee exposure standards established by regulatory agencies:
 

- 18 -

Occupational Safety and Health Administration
5,000 ng/m³
National Institute for Occupational Safety and Health
1,000 ng/m³
California Environmental Protection Agency
200 ng/m³
In public meetings conducted by the SCAQMD, it stated that the risk of long term exposure immediately adjacent to the plant is similar to living close to a busy freeway or rail yard, and it estimated an increased risk of 250 to 500 cancers per one million people, assuming continuous exposure for 70 years. Riverside has not determined how this particular risk number was calculated by SCAQMD. However, the Riverside Press Enterprise reported in a May 30, 2008 story that “John Morgan, a public health and epidemiology professor at Loma Linda University, said he looked at cancer cases reported from 1996 to 2005 in the census tract nearest the plant and found no excess cases. That includes lung cancer, which is associated with exposure to hexavalent chromium.”
In late April 2008, a lawsuit was filed in Riverside County Superior Court of the State of California styled Virginia Shellman, et al. v. Riverside Cement Holdings Company, et al . The lawsuit against three of our subsidiaries purports to be a class action complaint for medical monitoring for a putative class defined as individuals who were allegedly exposed to chrome 6 emissions from our Crestmore cement plant. The complaint alleges an increased risk of future illness due to the exposure to chrome 6 and other toxic chemicals. The suit requests, among other things, establishment and funding of a medical testing and monitoring program for the class until their exposure to chrome 6 is no longer a threat to their health, as well as punitive and exemplary damages.
Since the Shellman lawsuit was filed, five additional putative class action lawsuits have been filed in the same court. The putative class in each of these cases is the same as or a subset of the putative class in the Shellman case, and the allegations and requests for relief are similar to those in the Shellman case. As a consequence, the court has stayed four of these lawsuits until the Shellman lawsuit is finally determined.

Since August 2008, additional lawsuits have been filed in the same court against Texas Industries, Inc. or one or more of our subsidiaries containing allegations of personal injury and wrongful death by approximately 3,000 individual plaintiffs who were allegedly exposed to chrome 6 and other toxic or harmful substances in the air, water and soil caused by emissions from the Crestmore plant. The court has dismissed Texas Industries, Inc. from the suits, and our subsidiaries operating in Texas have been dismissed by agreement with the plaintiffs. Most of our subsidiaries operating in California remain as defendants. The court has dismissed from these suits plaintiffs that failed to provide required information, leaving approximately 2,000 plaintiffs.
Since January 2009, additional lawsuits have been filed against Texas Industries, Inc. or one or more of our subsidiaries in the same court involving similar allegations, causes of action and requests for relief, but with respect to our Oro Grande, California cement plant instead of the Crestmore plant. The suits involve approximately 300 individual plaintiffs. Texas Industries, Inc. and our subsidiaries operating in Texas have been similarly dismissed from these suits. The court has dismissed from these suits plaintiffs that failed to provide required information, leaving approximately 250 plaintiffs. Prior to the filing of the lawsuits, the air quality management district in whose jurisdiction the plant lies conducted air sampling from locations around the plant. None of the samples contained chrome 6 levels above 1.0 ng/m³.
The plaintiffs allege causes of action that are similar from suit to suit. Following dismissal of certain causes of action by the court and amendments by the plaintiffs, the remaining causes of action typically include, among other things, negligence, intentional and negligent infliction of emotional distress, trespass, public and private nuisance, strict liability, willful misconduct, fraudulent concealment, unfair business practices, wrongful death and loss of consortium. The plaintiffs generally request, among other things, general and punitive damages, medical expenses, loss of earnings, property damages and medical monitoring costs. At the date of this report, none of the plaintiffs in these cases has alleged in their pleadings any specific amount or range of damages. Some of the suits include additional defendants, such as the owner of another cement plant located approximately four miles from the Crestmore plant or former owners of the Crestmore and Oro Grande plants. Discovery is proceeding in all of the suits, and the trial for the claims of 14 of the individual plaintiffs is currently scheduled to begin in January, 2015. No trial date has been set in the class action suits or for other individual plantiffs. We are vigorously defending all of these suits but we cannot predict what liability, if any, could arise from them. We also cannot predict whether any other suits may be filed against us alleging damages due to injuries to persons or property caused by claimed exposure to chrome 6.
We are defendants in other lawsuits that arose in the ordinary course of business. In our judgment the ultimate liability, if any, from such legal proceedings will not have a material effect on our consolidated financial position or results of operations.
11. Business Segments
We have three business segments: cement, aggregates and concrete. Our business segments are managed separately along product lines. Through the cement segment we produce and sell gray portland cement as our principal product, as well as specialty cements. Through the aggregates segment we produce and sell stone, sand and gravel as our principal products. Previously, the aggregates segment included our expanded shale and clay lightweight aggregates which has been classified as discontinued operations in the prior period. Through the concrete segment we produce and sell ready-mix concrete as our principal product. We account for intersegment sales at market prices. Segment operating profit consists of net sales less operating costs and expenses. Corporate includes those administrative, financial, legal, human resources, environmental and real estate activities which are not allocated to operations and are excluded from segment operating profit. Identifiable assets by segment are those assets that are used in each segment’s operation. Corporate assets consist primarily of cash and cash equivalents, real estate and other financial assets not identified with a business segment. The following is a summary of operating results and certain other financial data for our business segments relating to continuing operations, and does not include information pertaining to discontinued operations.

- 19 -

 
 
Three months ended
 
Nine months ended
 
 
February 28,
 
February 28,
 
February 28,
 
February 28,
In thousands
 
2014
 
2013
 
2014
 
2013
Net sales
 
 
 
 
 
 
 
 
Cement
 
 
 
 
 
 
 
 
Sales to external customers
 
$
83,095

 
$
71,288

 
$
265,675

 
$
239,406

Intersegment sales
 
17,642

 
9,277

 
52,173

 
29,807

Aggregates
 
 
 
 
 
 
 
 
Sales to external customers
 
31,094

 
25,439

 
98,857

 
94,738

Intersegment sales
 
10,806

 
5,378

 
34,761

 
17,272

Concrete
 
 
 
 
 
 
 
 
Sales to external customers
 
93,639

 
44,632

 
285,270

 
149,431

Intersegment sales
 
22

 
8

 
82

 
119

Eliminations
 
(28,470
)
 
(14,663
)
 
(87,016
)
 
(47,198
)
Total net sales
 
$
207,828

 
$
141,359

 
$
649,802

 
$
483,575

Segment operating profit (loss)
 
 
 
 
 
 
 
 
Cement
 
$
(1,614
)
 
$
9,849

 
$
16,073

 
$
24,328

Aggregates
 
3,386

 
2,111

 
15,363

 
9,629

Concrete
 
4,850

 
(4,262
)
 
9,464

 
(8,777
)
Total segment operating profit
 
6,622

 
7,698

 
40,900

 
25,180

Corporate
 
(11,197
)
 
(10,339
)
 
(27,596
)
 
(30,967
)
Merger charges
 
(2,863
)
 
—

 
(2,863
)
 
—

Interest
 
(17,409
)
 
(7,227
)
 
(52,203
)
 
(22,462
)
Loss before income taxes
 
$
(24,847
)
 
$
(9,868
)
 
$
(41,762
)
 
$
(28,249
)
Depreciation, depletion and amortization
 
 
 
 
 
 
 
 
Cement
 
$
13,017

 
$
8,395

 
$
39,137

 
$
25,288

Aggregates
 
2,601

 
3,166

 
8,674

 
9,840

Concrete
 
3,160

 
2,281

 
9,965

 
6,128

Corporate
 
316

 
254

 
780

 
700

Total depreciation, depletion and amortization
 
$
19,094

 
$
14,096

 
$
58,556

 
$
41,956

Capital expenditures
 
 
 
 
 
 
 
 
Cement
 
$
5,713

 
$
13,803

 
$
22,128

 
$
54,588

Aggregates
 
963

 
927

 
3,644

 
3,528

Concrete
 
346

 
7,290

 
3,147

 
9,536

Corporate
 
1,835

 
201

 
4,358

 
1,220

Total capital expenditures
 
$
8,857

 
$
22,221

 
$
33,277

 
$
68,872

Net sales by product
 
 
 
 
 
 
 
 
Cement
 
$
75,713

 
$
63,811

 
$
240,466

 
$
213,215

Aggregates
 
20,325

 
16,641

 
64,009

 
60,638

Concrete
 
92,723

 
44,821

 
284,355

 
149,403

Other products
 
3,123

 
2,025

 
8,740

 
7,540

Delivery fees
 
15,944

 
14,061

 
52,232

 
52,779

Total net sales
 
$
207,828

 
$
141,359

 
$
649,802

 
$
483,575

All sales were made in the United States during the periods presented with no single customer representing more than ten percent of sales.

- 20 -

Capital expenditures for normal replacement and upgrades of existing equipment and acquisitions to sustain existing operations were $26.2 million and $17.8 million in the nine-month periods ended February 28, 2014 and 2013, respectively.
Capital expenditures in connection with the expansion of our Hunter, Texas cement plant for the nine-month period ended February 28, 2014 were $7.1 million consisting solely of interest paid that was capitalized in the prior year period ended May 31, 2013. Capital expenditures incurred in connection with the expansion of our Hunter, Texas cement plant were $61.3 million in the nine-month period ended February 28, 2013, of which $38.5 million was capitalized interest paid.
The following is a summary of assets used in each of our business segments.
In thousands
 
February 28,
2014
 
May 31,
2013
Identifiable assets
 
 
 
 
Cement
 
$
1,147,172

 
$
1,174,879

Aggregates
 
159,580

 
168,255

Concrete
 
187,901

 
182,839

Corporate
 
92,377

 
109,852

Total assets
 
$
1,587,030

 
$
1,635,825

All of our identifiable assets are located in the United States.
12. Condensed Consolidating Financial Information
On August 10, 2010, Texas Industries, Inc. (the parent company) issued $650 million aggregate principal amount of its 9.25% senior notes due 2020. All existing consolidated subsidiaries of the parent company are 100% owned and provide a joint and several, full and unconditional guarantee of the securities. There are no significant restrictions on the parent company’s ability to obtain funds from any of the guarantor subsidiaries in the form of a dividend or loan. Additionally, there are no significant restrictions on a guarantor subsidiary’s ability to obtain funds from the parent company or its direct or indirect subsidiaries.
The following condensed consolidating balance sheets, statements of operations and comprehensive income (loss) and statements of cash flows are provided for the parent company and guarantor subsidiaries. The information has been presented as if the parent company accounted for its ownership of the guarantor subsidiaries using the equity method of accounting. Prior period information has been reclassified to conform to the current period presentation.

- 21 -

In thousands
 
Texas
Industries, Inc.
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Condensed consolidating balance sheet at February 28, 2014
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
45,957

 
$
1,876

 
$
—

 
$
47,833

Receivables – net
 
563

 
126,811

 
(563
)
 
126,811

Inventories
 
—

 
107,910

 
—

 
107,910

Deferred income taxes and prepaid expenses
 
927

 
19,285

 
(155
)
 
20,057

Total current assets
 
47,447

 
255,882

 
(718
)
 
302,611

Property, plant and equipment – net
 
—

 
1,192,855

 
—

 
1,192,855

Goodwill
 
—

 
40,072

 
—

 
40,072

Real estate and investments
 
1,624

 
30,156

 
—

 
31,780

Deferred income taxes and other charges
 
208,438

 
10,015

 
(198,741
)
 
19,712

Investment in subsidiaries
 
1,081,716

 
—

 
(1,081,716
)
 
—

Long-term intercompany receivables
 
122,508

 
18,725

 
(141,233
)
 
—

Total assets
 
$
1,461,733

 
$
1,547,705

 
$
(1,422,408
)
 
$
1,587,030

Accounts payable
 
$
—

 
$
72,147

 
$
(563
)
 
$
71,584

Accrued interest, compensation and other
 
8,526

 
34,866

 
(155
)
 
43,237

Current portion of long-term debt
 
—

 
2,036

 
—

 
2,036

Total current liabilities
 
8,526

 
109,049

 
(718
)
 
116,857

Long-term debt
 
650,245

 
6,552

 
—

 
656,797

Long-term intercompany payables
 
18,737

 
122,496

 
(141,233
)
 
—

Deferred income taxes and other credits
 
52,137

 
227,892

 
(198,741
)
 
81,288

Shareholders’ equity
 
732,088

 
1,081,716

 
(1,081,716
)
 
732,088

Total liabilities and shareholders’ equity
 
$
1,461,733

 
$
1,547,705

 
$
(1,422,408
)
 
$
1,587,030

 
In thousands
 
Texas
Industries, Inc.
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Condensed consolidating balance sheet at May 31, 2013
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
58,791

 
$
2,505

 
$
—

 
$
61,296

Receivables – net
 
—

 
126,922

 
—

 
126,922

Inventories
 
—

 
105,054

 
—

 
105,054

Deferred income taxes and prepaid expenses
 
615

 
26,834

 
(155
)
 
27,294

Total current assets
 
59,406

 
261,315

 
(155
)
 
320,566

Property, plant and equipment – net
 
—

 
1,226,396

 
—

 
1,226,396

Goodwill
 
—

 
40,575

 
—

 
40,575

Real estate and investments
 
1,080

 
28,391

 
—

 
29,471

Deferred income taxes and other charges
 
210,838

 
7,744

 
(199,765
)
 
18,817

Investment in subsidiaries
 
1,061,854

 
—

 
(1,061,854
)
 
—

Long-term intercompany receivables
 
167,778

 
18,743

 
(186,521
)
 
—

Total assets
 
$
1,500,956

 
$
1,583,164

 
$
(1,448,295
)
 
$
1,635,825

Accounts payable
 
$
46

 
$
69,015

 
$
—

 
$
69,061

Accrued interest, compensation and other
 
26,416

 
36,075

 
(155
)
 
62,336

Current portion of long-term debt
 
—

 
1,872

 
—

 
1,872

Total current liabilities
 
26,462

 
106,962

 
(155
)
 
133,269

Long-term debt
 
650,245

 
7,690

 
—

 
657,935

Long-term intercompany payables
 
18,743

 
167,778

 
(186,521
)
 
—

Deferred income taxes and other credits
 
52,042

 
238,880

 
(199,765
)
 
91,157

Shareholders’ equity
 
753,464

 
1,061,854

 
(1,061,854
)
 
753,464

Total liabilities and shareholders’ equity
 
$
1,500,956

 
$
1,583,164

 
$
(1,448,295
)
 
$
1,635,825


- 22 -

In thousands
 
Texas
Industries, Inc.
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Condensed consolidating statement of operations and comprehensive income (loss) for the three months ended February 28, 2014
 
 
 
 
 
 
 
 
Net sales
 
$
—

 
$
207,828

 
$
—

 
$
207,828

Cost of products sold
 
—

 
195,835

 
—

 
195,835

Gross profit
 
—

 
11,993

 
—

 
11,993

Selling, general and administrative
 
4,184

 
14,080

 
—

 
18,264

Merger charges
 
2,863

 
—

 
—

 
2,863

Interest
 
17,304

 
—

 
105

 
17,409

Other income, net
 
(12
)
 
(1,684
)
 
—

 
(1,696
)
Intercompany other (income) loss
 
(863
)
 
968

 
(105
)
 
—

Loss from continuing operations before the following items
 
(23,476
)
 
(1,371
)
 
—

 
(24,847
)
Income taxes (benefit)
 
(1,654
)
 
(1,424
)
 
—

 
(3,078
)
Equity in earnings (loss) of subsidiaries
 
53

 
—

 
(53
)
 
—

Net income (loss) from continuing operations
 
(21,769
)
 
53

 
(53
)
 
(21,769
)
Net income from discontinued operations
 
—

 
—

 
—

 
—

Net income (loss)
 
$
(21,769
)
 
$
53

 
$
(53
)
 
$
(21,769
)
Comprehensive income (loss)
 
$
(21,769
)
 
$
3,210

 
$
(53
)
 
$
(18,612
)
 

In thousands
 
Texas
Industries, Inc.
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Condensed consolidating statement of operations and comprehensive income (loss) for the three months ended February 28, 2013
 
 
 
 
 
 
 
 
Net sales
 
$
—

 
$
141,359

 
$
—

 
$
141,359

Cost of products sold
 
—

 
129,035

 
—

 
129,035

Gross profit
 
—

 
12,324

 
—

 
12,324

Selling, general and administrative
 
2,762

 
14,294

 
—

 
17,056

Interest
 
17,309

 
—

 
(10,082
)
 
7,227

Other income, net
 
(13
)
 
(2,078
)
 
—

 
(2,091
)
Intercompany other (income) loss
 
(863
)
 
(9,219
)
 
10,082

 
—

Income (loss) from continuing operations before the following items
 
(19,195
)
 
9,327

 
—

 
(9,868
)
Income taxes (benefit)
 
517

 
(1,872
)
 
—

 
(1,355
)
Equity in earnings of subsidiaries
 
13,898

 
—

 
(13,898
)
 
—

Net income (loss) from continuing operations
 
(5,814
)
 
11,199

 
(13,898
)
 
(8,513
)
Net income from discontinued operations
 
—

 
2,699

 
—

 
2,699

Net income (loss)
 
$
(5,814
)
 
$
13,898

 
$
(13,898
)
 
$
(5,814
)
Comprehensive income (loss)
 
$
(5,814
)
 
$
13,994

 
$
(13,898
)
 
$
(5,718
)











- 23 -

In thousands
 
Texas
Industries, Inc.
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Condensed consolidating statement of operations and comprehensive income (loss) for the nine months ended February 28, 2014
 
 
 
 
 
 
 
 
Net sales
 
$
—

 
$
649,802

 
$
—

 
$
649,802

Cost of products sold
 
—

 
592,986

 
—

 
592,986

Gross profit
 
—

 
56,816

 
—

 
56,816

Selling, general and administrative
 
8,643

 
47,828

 
—

 
56,471

Merger charges
 
2,863

 
—

 
—

 
2,863

Interest
 
51,877

 
—

 
326

 
52,203

Other income, net
 
(70
)
 
(12,889
)
 
—

 
(12,959
)
Intercompany other (income) loss
 
(2,618
)
 
2,944

 
(326
)
 
—

Income (loss) from continuing operations before the following items
 
(60,695
)
 
18,933

 
—

 
(41,762
)
Income taxes (benefit)
 
(2,169
)
 
(614
)
 
—

 
(2,783
)
Equity in earnings of subsidiaries
 
19,547

 
—

 
(19,547
)
 
—

Net income (loss) from continuing operations
 
$
(38,979
)
 
$
19,547

 
$
(19,547
)
 
$
(38,979
)
Net income from discontinued operations
 
$
—

 
$
—

 
$
—

 
$
—

Net income (loss)
 
$
(38,979
)
 
$
19,547

 
$
(19,547
)
 
$
(38,979
)
Comprehensive income (loss)
 
$
(38,979
)
 
$
22,724

 
$
(19,547
)
 
$
(35,802
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

In thousands
 
Texas
Industries, Inc.
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Condensed consolidating statement of operations and comprehensive income (loss) for the nine months ended February 28, 2013
 
 
 
 
 
 
 
 
Net sales
 
$
—

 
$
483,575

 
$
—

 
$
483,575

Cost of products sold
 
—

 
444,297

 
—

 
444,297

Gross profit
 
—

 
39,278

 
—

 
39,278

Selling, general and administrative
 
7,446

 
44,233

 
—

 
51,679

Interest
 
51,545

 
—

 
(29,083
)
 
22,462

Other income, net
 
(62
)
 
(6,552
)
 
—

 
(6,614
)
Intercompany other (income) loss
 
(2,618
)
 
(26,465
)
 
29,083

 
—

Income (loss) from continuing operations before the following items
 
(56,311
)
 
28,062

 
—

 
(28,249
)
Income taxes (benefit)
 
441

 
(2,592
)
 
—

 
(2,151
)
Equity in earnings of subsidiaries
 
37,159

 
—

 
(37,159
)
 
—

Net income (loss) from continuing operations
 
(19,593
)
 
30,654

 
(37,159
)
 
(26,098
)
Net income from discontinued operations
 
—

 
6,504

 
—

 
6,504

Net income (loss)
 
$
(19,593
)
 
$
37,158

 
$
(37,159
)
 
$
(19,594
)
Comprehensive Income (loss)
 
$
(19,593
)
 
$
37,719

 
$
(37,159
)
 
$
(19,033
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




- 24 -

In thousands
 
Texas
Industries, Inc.
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Condensed consolidating statement of cash flows for the nine months ended February 28, 2014 (unaudited)
 
 
 
 
 
 
 
 
Net cash provided (used) by operating activities
 
$
(71,557
)
 
$
70,892

 
$
—

 
$
(665
)
Investing activities
 
 
 
 
 
 
 

Capital expenditures – expansions
 
—

 
(7,125
)
 
—

 
(7,125
)
Capital expenditures – other
 
—

 
(26,152
)
 
—

 
(26,152
)
Proceeds from asset disposals
 
—

 
8,390

 
—

 
8,390

Proceeds from insurance contracts, net of premiums paid
 
4,386

 
—

 
—

 
4,386

Net cash provided (used) by investing activities
 
4,386

 
(24,887
)
 
—

 
(20,501
)
Financing activities
 
 
 
 
 
 
 

Debt payments
 
—

 
(1,373
)
 
—

 
(1,373
)
Stock option exercises
 
9,076

 
—

 
—

 
9,076

Net intercompany financing activities
 
45,261

 
(45,261
)
 
—

 
—

Net cash provided (used) by financing activities
 
54,337

 
(46,634
)
 
—

 
7,703

Decrease in cash and cash equivalents
 
(12,834
)
 
(629
)
 
—

 
(13,463
)
Cash and cash equivalents at beginning of period
 
58,791

 
2,505

 
—

 
61,296

Cash and cash equivalents at end of period
 
$
45,957

 
$
1,876

 
$
—

 
$
47,833


In thousands
 
Texas
Industries, Inc.
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Condensed consolidating statement of cash flows for the nine months ended February 28, 2013 (unaudited)
 
 
 
 
 
 
 
 
Net cash provided (used) by operating activities
 
$
(88,158
)
 
$
97,929

 
$
—

 
$
9,771

Investing activities
 
 
 
 
 
 
 

Capital expenditures – expansions
 
—

 
(61,344
)
 
—

 
(61,344
)
Capital expenditures – other
 
—

 
(17,752
)
 
—

 
(17,752
)
Proceeds from asset disposals
 
—

 
5,783

 
—

 
5,783

Proceeds from insurance contracts, net of premiums paid
 
2,366

 
—

 
—

 
2,366

Other – net
 
—

 
(67
)
 
—

 
(67
)
Net cash provided (used) by investing activities
 
2,366

 
(73,380
)
 
—

 
(71,014
)
Financing activities
 
 
 
 
 
 
 

Debt payments
 
(4
)
 
(2,232
)
 
—

 
(2,236
)
Stock option exercises
 
7,116

 
—

 
—

 
7,116

Net intercompany financing activities
 
20,382

 
(20,382
)
 
—

 
—

Net cash provided (used) by financing activities
 
27,494

 
(22,614
)
 
—

 
4,880

Increase (decrease) in cash and cash equivalents
 
(58,298
)
 
1,935

 
—

 
(56,363
)
Cash and cash equivalents at beginning of period
 
84,713

 
3,314

 
—

 
88,027

Cash and cash equivalents at end of period
 
$
26,415

 
$
5,249

 
$
—

 
$
31,664



- 25 -

13. Merger Agreement

On January 27, 2014, the Company entered into an Agreement and Plan of Merger (the “merger agreement”) with Martin Marietta Materials, Inc. ("Martin Marietta") and Project Holdings, Inc. ("Merger Sub"), a wholly owned subsidiary of Martin Marietta. Subject to the terms and conditions set forth in the merger agreement, Merger Sub will merge with and into the Company with the Company surviving the merger as a wholly owned subsidiary of Martin Marietta. At the effective time of the merger, each outstanding share of Company common stock will be exchanged for 0.70 of a share of Martin Marietta common stock. The merger agreement was unanimously approved by the Boards of Directors of the Company and Martin Marietta.

The consummation of the merger is subject to customary closing conditions, including, among others, the adoption of the merger agreement by the Company's stockholders, approval by the Martin Marietta shareholders of the issuance of the Martin Marietta common stock in connection with the merger and expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. In addition, the merger agreement contains certain termination rights for both the Company and Martin Marietta, and further provides for the payment of termination fees under certain specified circumstances. The Company currently anticipates the closing of the proposed business combination with Martin Marietta to be in the summer of 2014. However, the Company cannot assure that the closing of the proposed business combination will occur by any particular date, or at all.

In connection with the proposed business combination with Martin Marietta, Martin Marietta has filed with the Securities and Exchange Commission ("SEC") a Registration Statement on Form S-4 that included a joint proxy statement of the Company and Martin Marietta and also constituted a prospectus for the shares of Martin Marietta common stock to be issued upon consummation of the merger. For additional information regarding the proposed business combination and the risks and uncertainties associated with it, please see the joint proxy statement/prospectus included in the Registration Statement on Form S-4 (as may be amended from time to time) and, when it becomes available, other relevant material that will be filed with the SEC.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Texas Industries, Inc.

We have reviewed the accompanying condensed consolidated balance sheet of Texas Industries, Inc. and subsidiaries (the Company) as of February 28, 2014, and the related condensed consolidated statements of operations and comprehensive loss for the three- and nine-month periods ended February 28, 2014 and 2013, and the condensed consolidated statements of cash flows for the nine-month periods ended February 28, 2014 and 2013. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

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

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Texas Industries, Inc. and subsidiaries as of May 31, 2013, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for the year then ended, and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated July 22, 2013. In our opinion, the accompanying consolidated balance sheet of Texas Industries, Inc. and subsidiaries as of May 31, 2013, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

- 26 -

/s/ Ernst & Young LLP
Dallas, Texas
April 4, 2014

- 27 -


Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
When used in this report the terms “Company,” “we,” “us” or “our” mean Texas Industries, Inc. and subsidiaries unless the context indicates otherwise.
We have changed the name of our "consumer products" segment to "concrete". This change impacts only the name of the segment to better reflect the business activity that occurs within the segment, and does not impact or change the financial information that we report through this segment.

RESULTS OF OPERATIONS
We are a leading supplier of heavy construction materials in the southwestern United States through our three business segments: cement, aggregates and concrete. Our principal products are gray portland cement, produced and sold through our cement segment; stone, sand and gravel, produced and sold through our aggregates segment; and ready-mix concrete, produced and sold through our concrete segment. Our facilities are concentrated primarily in Texas, Louisiana and California.
Management uses segment operating profit as its principal measure to assess performance and to allocate resources. Business segment operating profit consists of net sales less operating costs and expenses that are directly attributable to the segment. Corporate includes non-operating income and expenses related to administrative, financial, legal, human resources, environmental and real estate activities.
During the nine-month period ended February 28, 2014, construction activity has continued to show a positive trend although levels remain well below pre-recession highs in both our California and Texas market areas. We have completed a multi-year program to upgrade the efficiency and increase the production capacity of all of our cement plants and have also refocused our combined portfolio of businesses around our core cement, aggregate and ready-mix concrete businesses. Our efforts are now focused on the goal of leveraging this improved foundation, in combination with the positive trends in construction, to generate increasing sales, improved margins and growth in free cash flow.

On March 22, 2013, our subsidiaries exchanged their expanded shale and clay lightweight aggregates manufacturing business for the ready-mix concrete business of subsidiaries of Trinity Industries, Inc. in east Texas and southwest Arkansas. Pursuant to the agreements, we transferred our expanded shale and clay manufacturing facilities in Streetman, Texas; Boulder, Colorado and Frazier Park, California; and our DiamondPro® product line in exchange for 42 ready-mix concrete plants stretching from Texarkana to Beaumont in east Texas and in southwestern Arkansas, two aggregate distribution facilities in Beaumont and Port Arthur, Texas, and related assets. The operational results for expanded shale and clay lightweight aggregates manufacturing business are reported as discontinued operations for the periods represented in this filing. See discussion in Item 1, Note 2.

On January 27, 2014, the Company entered into an Agreement and Plan of Merger (the “merger agreement”) with Martin Marietta Materials, Inc. ("Martin Marietta") and Project Holdings, Inc. ("Merger Sub"), a wholly owned subsidiary of Martin Marietta. Subject to the terms and conditions set forth in the merger agreement, Merger Sub will merge with and into the Company with the Company surviving the merger as a wholly owned subsidiary of Martin Marietta. At the effective time of the merger, each outstanding share of Company common stock will be exchanged for 0.70 of a share of Martin Marietta common stock. The merger agreement was unanimously approved by the Boards of Directors of the Company and Martin Marietta.

The consummation of the merger is subject to customary closing conditions, including, among others, the adoption of the merger agreement by the Company's stockholders, approval by the Martin Marietta shareholders of the issuance of the Martin Marietta common stock in connection with the merger and expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. In addition, the merger agreement contains certain termination rights for both the Company and Martin Marietta, and further provides for the payment of termination fees under certain specified circumstances. The Company currently anticipates the closing of the proposed business combination with Martin Marietta to be in the summer of 2014. However, the Company cannot assure that the closing of the proposed business combination will occur by any particular date, or at all.

In connection with the proposed business combination with Martin Marietta, Martin Marietta has filed with the Securities and Exchange Commission ("SEC") a Registration Statement on Form S-4 that included a joint proxy statement of the Company and Martin Marietta and also constituted a prospectus for the shares of Martin Marietta common stock to be issued upon consummation of the merger. For additional information regarding the proposed business combination and the risks and uncertainties associated with it, please see the joint proxy statement/prospectus included in the Registration Statement on Form

- 28 -

S-4 (as may be amended from time to time) and, when it becomes available, other relevant material that will be filed with the SEC.
Consolidated net sales for the three-month period ended February 28, 2014 were $207.8 million, an increase of $66.4 million from the prior year period. Consolidated cost of products sold for the three-month period ended February 28, 2014 was $195.8 million, an increase of $66.8 million from the prior year period. Sales increased primarily as a result of the addition of 42 ready-mix concrete plants and two aggregate terminals acquired in an asset exchange on March 22, 2013. Increased shipments and improved pricing on a same product and same market basis in Texas and California also contributed to the increase in sales. Shipments during the period were negatively impacted by more inclement weather in Texas compared to the prior year period. Cost of products sold increased primarily due to higher shipments, depreciation expense related to our new production line at our Hunter cement plant and higher repair and maintenance costs that includes annual major outages at our Texas cement plants. Consolidated gross profit for the three-month periods ended February 28, 2014 and 2013 was $12.0 million and $12.3 million, respectively.
Consolidated net sales for the nine-month period ended February 28, 2014 were $649.8 million, an increase of $166.2 million from the prior year period. Consolidated cost of products sold for the nine-month period ended February 28, 2014 was $593.0 million, an increase of $148.7 million from the prior year period. Sales increased primarily as a result of the addition of 42 ready-mix concrete plants and two aggregate terminals acquired in an asset exchange on March 22, 2013. Increased shipments and improved pricing on a same product and same market basis in Texas and California also contributed to the increase in sales. Cost of products sold increased primarily due to higher shipments, depreciation expense related to our new production line at our Hunter cement plant and repair and maintenance costs. Consolidated gross profit for the nine-month periods ended February 28, 2014 and 2013 was $56.8 million and $39.3 million, respectively.
Consolidated selling, general and administrative expenses for the three-month period ended February 28, 2014 was $18.3 million, an increase of $1.2 million from the prior year period. This increase was primarily attributable to higher compensation costs resulting from an increase in head count due to the addition of the ready-mix concrete plants acquired through an asset exchange on March 22, 2013, and higher legal expenses related to litigation matters associated with our facilities in California.
Merger related expenses for the three-month period ended February 28, 2014 was $2.9 million. These costs relate to the proposed business combination with Martin Marietta discussed above. See discussion above.
Consolidated selling, general and administrative expenses for the nine-month period ended February 28, 2014 was $56.5 million, an increase of $4.8 million from the prior year period. This increase was primarily attributable to higher compensation costs resulting from an increase in head count due to the addition of the ready-mix concrete plants acquired through an asset exchange on March 22, 2013, and higher legal expenses related to litigation matters associated with our facilities in California.
Merger related expenses for the nine-month period ended February 28, 2014 was $2.9 million. These costs relate to the proposed business combination with Martin Marietta discussed above. See discussion above.
Consolidated other income for the three-month period ended February 28, 2014 was $1.7 million, a decrease of $0.4 million from the prior year period. Other income includes earnings from a joint venture of $0.7 million and $0.5 million in the three-month periods ended February 28, 2014 and 2013, respectively.
Consolidated other income for the nine-month period ended February 28, 2014 was $13.0 million, an increase of $6.4 million from the prior year period. Routine sales of surplus operating assets and real estate resulted in gains of $6.1 million in the nine-month period ended February 28, 2014. Other income also includes earnings from a joint venture of $2.6 million and $1.6 million in the nine-month periods ended February 28, 2014 and 2013, respectively.
Net income from discontinued operations for the three-month period ended February 28, 2013 was $2.7 million. As discussed above and in Item 1, Note 2, the businesses whose operating activity comprised discontinued operations in the prior year period were sold on March 22, 2013.
Net income from discontinued operations for the nine-month period ended February 28, 2013 was $6.5 million.
Total segment operating profit for the three-month periods ended February 28, 2014 and 2013 was $6.6 million and $7.7 million, respectively.
Total segment operating profit for the nine-month periods ended February 28, 2014 and 2013 was $40.9 million and $25.2 million, respectively.
The following is a summary of operating results for our business segments and certain other information related to our principal products and non-operating expenses.

- 29 -

Cement Operations
 
 
 
Three months ended
 
Nine months ended
 
 
February 28,
 
February 28,
 
February 28,
 
February 28,
In thousands except per unit
 
2014
 
2013
 
2014
 
2013
Operating Results
 
 
 
 
 
 
 
 
Cement sales
 
$
93,356

 
$
73,086

 
$
292,638

 
$
242,983

Other sales and delivery fees
 
7,381

 
7,480

 
25,210

 
26,230

Total segment sales
 
100,737

 
80,566

 
317,848

 
269,213

Cost of products sold
 
98,667

 
68,501

 
291,692

 
237,326

Gross profit
 
2,070

 
12,065

 
26,156

 
31,887

Selling, general and administrative
 
(3,088
)
 
(3,247
)
 
(11,703
)
 
(10,520
)
Other income (expense), net
 
(596
)
 
1,031

 
1,620

 
2,961

Operating profit
 
$
(1,614
)
 
$
9,849

 
$
16,073

 
$
24,328

Cement
 
 
 
 
 
 
 
 
Shipments (tons)
 
1,141

 
933

 
3,640

 
3,086

Prices ($/ton)
 
$
81.85

 
$
78.39

 
$
80.40

 
$
78.75

Cost of sales ($/ton)
 
$
80.61

 
$
64.35

 
$
73.82

 
$
68.62

Three months ended February 28, 2014
Cement operating profit (loss) for the three-month periods ended February 28, 2014 and 2013 was $(1.6) million and $9.8 million, respectively.
Total segment sales for the three-month period ended February 28, 2014 were $100.7 million compared to $80.6 million for the prior year period. Cement sales increased $20.3 million from the prior year period. Our Texas market area accounted for approximately 74% of cement sales in the current period compared to 71% of cement sales in the prior year period. Average cement prices increased 5.1% in our Texas market from the prior year period. Average cement prices increased 1.6% in our California market from the prior year period. Price increases on a same product and same market basis in both Texas and California were offset by changes in product, geographic and customer mix. Shipments increased 27.0% in our Texas market area and 11.8% in our California market area from prior year period. Shipments during the period were negatively impacted by more inclement weather in Texas compared to the prior year period.
Cost of products sold for the three-month period ended February 28, 2014 increased $30.2 million from the prior year period primarily due to higher shipments, depreciation expense related to our new production line at our Hunter cement plant, repair and maintenance costs at our Texas plants, and emission allowance credits associated with our compliance with The California Global Warming Solutions Act of 2006, which took effect on January 1, 2013. Cement unit cost of sales increased 25.3% from the prior year period as the impact of higher costs including depreciation, repair and maintenance that includes annual major outages at our Texas Plants, and emission allowance credits were partially offset by higher shipments.
Selling, general and administrative expense for the three-month period ended February 28, 2014 decreased $0.2 million from the prior year period on lower provisions for insurance claims, which were offset by higher legal expenses related to the litigation matters associated with our facilities in California.
Other income for the three-month period ended February 28, 2014 decreased $1.6 million from the prior year period on lower royalty income and miscellaneous income.
Nine months ended February 28, 2014
Cement operating profit for the nine-month periods ended February 28, 2014 and 2013 was $16.1 million and $24.3 million, respectively.
Total segment sales for the nine-month period ended February 28, 2014 were $317.8 million compared to $269.2 million for the prior year period. Cement sales increased $49.7 million from the prior year period. Our Texas market area accounted for approximately 71% of cement sales in the current period compared to 69% of cement sales in the prior year period. Average cement prices increased 2.5% in our Texas market from the prior year period. Average cement prices in our California market

- 30 -

remained flat from the prior year period. Price increases on a same product and same market basis in both Texas and California were offset by changes in product, geographic and customer mix. Shipments increased 21.3% in our Texas market area and 11.2% in our California market area from the prior year period. Shipments during the period were negatively impacted by more inclement weather in Texas compared to the prior year period.
Cost of products sold for the nine-month period ended February 28, 2014 increased $54.4 million from the prior year period primarily due to higher shipments, depreciation expense related to our new production line at our Hunter cement plant, repair and maintenance costs at our Texas plants, and emission allowance credits associated with our compliance with The California Global Warming Solutions Act of 2006, which took effect on January 1, 2013. Cement unit cost of sales increased 7.6% from the prior year period as the impact of higher costs including depreciation, repair and maintenance, and emission allowance credits were partially offset by higher shipments.
Selling, general and administrative expense for the nine-month period ended February 28, 2014 increased $1.2 million from the prior year period on higher legal expenses related to the litigation matters associated with our facilities in California, which were offset by lower provisions for insurance claims.
Other income for the nine-month period ended February 28, 2014 decreased $1.3 million from the prior year period on lower miscellaneous income and lower gains on routine sales of surplus operating assets.

Aggregates Operations
 
 
Three months ended
 
Nine months ended
 
 
February 28,
 
February 28,
 
February 28,
 
February 28,
In thousands except per unit
 
2014
 
2013
 
2014
 
2013
Operating Results
 
 
 
 
 
 
 
 
Stone, sand and gravel sales
 
$
31,177

 
$
22,021

 
$
98,770

 
$
77,911

Delivery fees and other
 
10,723

 
8,799

 
34,848

 
34,101

Total segment sales
 
41,900

 
30,820

 
133,618

 
112,012

Cost of products sold
 
37,666

 
28,106

 
115,140

 
100,294

Gross profit
 
4,234

 
2,714

 
18,478

 
11,718

Selling, general and administrative
 
(1,679
)
 
(900
)
 
(4,686
)
 
(2,763
)
Other income, net
 
831

 
295

 
1,571

 
674

Operating profit
 
$
3,386

 
$
2,109

 
$
15,363

 
$
9,629

Stone, sand and gravel
 
 
 
 
 
 
 
 
Shipments (tons)
 
3,671

 
3,029

 
11,958

 
10,751

Prices ($/ton)
 
$
8.49

 
$
7.27

 
$
8.26

 
$
7.25

Cost of sales ($/ton)
 
$
7.37

 
$
6.46

 
$
6.73

 
$
6.12


Previously, the aggregates segment included our expanded shale and clay lightweight aggregates operations which has been classified as discontinued operations in the prior period. Therefore, amounts for these operations are not included in the information presented.
Three months ended February 28, 2014
Aggregates operating profit for the three-month periods ended February 28, 2014 and 2013 was $3.4 million and $2.1 million, respectively.
Total segment sales for the three-month period ended February 28, 2014 were $41.9 million compared to $30.8 million for the prior year period. Stone, sand and gravel sales increased $9.2 million from the prior year period on 21.2% higher shipments and 16.8% higher average prices. Average selling prices increased primarily due to the impact of product and geographic mix associated with the aggregate terminals acquired in the asset exchange on March 22, 2013. Shipments during the period were negatively impacted by more inclement weather in Texas compared to the prior year period.
Delivery fees increased $1.9 million due to the acquisition of aggregate terminals in our asset exchange on March 22, 2013. Delivery costs associated with shipments to the acquired terminals are not directly billed to our customers.

- 31 -

Cost of products sold for the three-month period ended February 28, 2014 increased $9.6 million compared to the prior year period. Stone, sand and gravel unit costs increased 14.1% from the prior year period primarily due to the impact of including delivery costs associated with shipments to the acquired terminals in unit costs of sales.
Selling, general and administrative expense for the three-month period ended February 28, 2014 increased $0.7 million from the prior year period primarily due to higher provisions for insurance claims.
Other income for the three-month period ended February 28, 2014 increased $0.5 million from the prior year period primarily on the sale of surplus assets and higher royalties.
Nine months ended February 28, 2014
Aggregates operating profit for the nine-month periods ended February 28, 2014 and 2013 was $15.4 million and $9.6 million, respectively.
Total segment sales for the nine-month period ended February 28, 2014 were $133.6 million compared to $112.0 million for the prior year period. Stone, sand and gravel sales increased $20.9 million from the prior year period due to 11.2% higher shipments and 13.9% higher average prices. Average selling prices increased primarily due to the impact of product and geographic mix associated with the aggregate terminals acquired in the asset exchange on March 22, 2013.Shipments during the period were negatively impacted by more inclement weather in Texas compared to the prior year period.
Cost of products sold for the nine-month period ended February 28, 2014 increased $14.8 million from the prior year period primarily due to increased stone, sand and gravel shipments and higher distribution costs. Stone, sand and gravel unit costs increased 10.0% from the prior year period primarily due to to the impact of including delivery costs associated with shipments to the acquired terminals in unit costs of sales offset by the effect of higher shipments.
Selling, general and administrative expense for the nine-month period ended February 28, 2014 increased $1.9 million from the prior year period primarily due to higher bad debt and compensation related expenses and higher provisions for insurance claims.
Other income for the nine-month period ended February 28, 2014 increased $0.9 million from the prior year period on sale of surplus assets and higher royalties.

Concrete Operations
 
 
Three months ended
 
Nine months ended
 
 
February 28,
 
February 28,
 
February 28,
 
February 28,
In thousands except per unit
 
2014
 
2013
 
2014
 
2013
Operating Results
 
 
 
 
 
 
 
 
Ready-mix concrete sales
 
$
93,031

 
$
44,582

 
$
284,436

 
$
149,276

Delivery fees
 
630

 
46

 
916

 
274

Total segment sales
 
93,661

 
44,628

 
285,352

 
149,550

Cost of products sold
 
88,013

 
47,081

 
273,193

 
153,877

Gross profit (loss)
 
5,648

 
(2,453
)
 
12,159

 
(4,327
)
Selling, general and administrative
 
(1,690
)
 
(2,475
)
 
(7,974
)
 
(7,239
)
Other income, net
 
892

 
666

 
5,279

 
2,789

Operating profit (loss)
 
$
4,850

 
$
(4,262
)
 
$
9,464

 
$
(8,777
)
Ready-mix concrete
 
 
 
 
 
 
 
 
Shipments (cubic yards)
 
1,085

 
541

 
3,298

 
1,833

Prices ($/cubic yard)
 
$
86.03

 
$
82.49

 
$
86.23

 
$
81.46

Cost of sales ($/cubic yard)
 
$
80.86

 
$
87.04

 
$
82.60

 
$
83.88

Three months ended February 28, 2014
Concrete operating profit for the three-month period ended February 28, 2014 was $4.9 million compared to an operating loss of $4.3 million for the three-month period ended February 28, 2013.

- 32 -

Total segment sales for the three-month period ended February 28, 2014 were $93.7 million compared to $44.6 million for the prior year period. Segment sales increased $49.1 million from the prior year period primarily due to the addition of the 42 ready-mix concrete plants acquired through an asset exchange on March 22, 2013, which accounted for 52% of the increase in shipments compared to the prior year period. Price improvement in every market combined with market mix shifts attributable to the additional 42 ready-mix plants resulted in 4.3% higher average prices.
Cost of products sold for the three-month period ended February 28, 2014 increased $40.9 million from the prior year period as a result of the 42 additional ready-mix concrete plants acquired through an asset exchange on March 22, 2013, along with increased shipments from existing locations. Ready-mix concrete unit costs decreased 7.1% from the prior year period primarily due to higher shipments.
Selling, general and administrative expense for the three-month period ended February 28, 2014 decreased $0.8 million from the prior year period primarily due to lower provisions for insurance claims, which were offset by higher compensation costs resulting from an increase in head count due to the addition of the 42 ready-mix concrete plants acquired through an asset exchange on March 22, 2013.
Other income for the three-month period ended February 28, 2014 increased $0.2 million from prior year period on sale of surplus assets.
Nine months ended February 28, 2014
Concrete operating profit for the nine-month period ended February 28, 2014 was $9.5 million compared to an operating loss of $8.8 million for the nine-month period ended February 28, 2013.
Total segment sales for the nine-month period ended February 28, 2014 were $285.4 million compared to $149.6 million for the prior year period. Segment sales increased $135.8 million from the prior year period primarily due to the addition of the 42 ready-mix concrete plants acquired through an asset exchange on March 22, 2013, which accounts for 61% of the increase in shipments compared to the prior year period. Price improvement in every market combined with market mix shifts attributable to the additional 42 ready-mix plants resulted in 5.9% higher average prices.
Cost of products sold for the nine-month period ended February 28, 2014 increased $119.3 million from the prior year period as a result of the 42 additional ready-mix concrete plants acquired through an asset exchange on March 22, 2013, along with increased shipments from existing locations. Ready-mix concrete unit costs decreased 1.5% from the prior year period primarily due to higher shipments.
Selling, general and administrative expense for the nine-month period ended February 28, 2014 increased $0.7 million from the prior year period primarily attributable to higher compensation costs resulting from an increase in head count due to the addition of the 42 ready-mix concrete plants acquired through an asset exchange on March 22, 2013, which was offset by lower provisions for insurance claims.
Other income for the nine-month period ended February 28, 2014 increased $2.5 million from the prior year period primarily due to higher earnings from our joint venture and higher gains on routine sales of surplus operating assets.

- 33 -

Corporate
 
 
Three months ended
 
Nine months ended
 
 
February 28,
 
February 28,
 
February 28,
 
February 28,
In thousands
 
2014
 
2013
 
2014
 
2013
Other income, net
 
$
570

 
$
98

 
$
4,490

 
$
190

Merger charges
 
(2,863
)
 
—

 
(2,863
)
 
—

Selling, general and administrative
 
(11,766
)
 
(10,437
)
 
(32,086
)
 
(31,157
)
 
 
$
(14,059
)
 
$
(10,339
)
 
$
(30,459
)
 
$
(30,967
)
Three months ended February 28, 2014
Other income for the three-month period ended February 28, 2014 contains a gain of $0.4 million from a routine sale of real estate.
Selling, general and administrative expense for the three-month period ended February 28, 2014 increased by $1.4 million compared to the prior year period primarily due to higher provisions for insurance claims.
Merger related expenses for the three-month period ended February 28, 2014 was $2.9 million. These costs relate to the proposed business combination with Martin Marietta discussed above. See discussion in Item 1, Note 13.
Nine months ended February 28, 2014
Other income for the nine-month period ended February 28, 2014 contains a gain of $3.9 million from routine sales of real estate.
Selling, general and administrative expense for the nine-month period ended February 28, 2014 increased by $0.9 million compared to the prior year period primarily due to higher provisions for insurance claims.
Merger related expenses for the nine-month period ended February 28, 2014 was $2.9 million. These costs relate to the proposed business combination with Martin Marietta discussed above. See discussion in Item 1, Note 13.







- 34 -

Interest
Interest expense incurred for the three-month period ended February 28, 2014 was $17.4 million. Interest expense incurred for the three-month period ended February 28, 2013 was $17.4 million, of which $10.2 million was capitalized in connection with our Hunter, Texas cement plant expansion project and $7.2 million was expensed.
Interest expense incurred for the nine-month period ended February 28, 2014 was $52.2 million. Interest expense incurred for the nine-month period ended February 28, 2013 was $51.9 million, of which $29.4 million was capitalized in connection with our Hunter, Texas cement plant expansion project and $22.5 million was expensed.
Income Taxes
Income taxes for the interim periods ended February 28, 2014 and 2013 have been included in the accompanying financial statements on the basis of an estimated annual rate. The tax rate differs from the 35% federal statutory corporate rate primarily due to percentage depletion that is tax deductible, state income taxes and valuation allowances against deferred tax assets. The estimated annualized rate for continuing operations is 5.4% for fiscal year 2014 compared to 7.9% for fiscal year 2013. We received income tax refunds of $0.4 million in the nine-month period ended February 28, 2014 and none in the nine-month period ended February 28, 2013. We made no income tax payments in the nine-month periods ended February 28, 2014 and 2013.
Net deferred tax assets totaled $5.0 million at February 28, 2014 and $6.7 million at May 31, 2013. Net deferred tax assets classified as current were $14.2 million at February 28, 2014 and $18.8 million at May 31, 2013. Management reviews our deferred tax position and in particular our deferred tax assets whenever circumstances indicate that the assets may not be realized in the future and records a valuation allowance unless such deferred tax assets are deemed more likely than not to be recoverable. The ultimate realization of these deferred tax assets depends upon various factors including the generation of taxable income during future periods. The Company’s deferred tax assets exceeded deferred tax liabilities as of February 28, 2014 and May 31, 2013 primarily as a result of recent losses. Management has concluded that the sources of taxable income we are permitted to consider do not assure the realization of the entire amount of our net deferred tax assets. Accordingly, a valuation allowance is required due to the uncertainty of realizing the deferred tax assets. We will continue to record additional valuation allowance against additions to our net deferred tax assets for fiscal year 2014 until management believes it is more likely than not the deferred tax assets will be realized.
The amount of income tax we pay is subject to ongoing audits by federal and state authorities which may result in proposed assessments. We adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit, judicial rulings, refinement of estimates, or realization of earnings or deductions that differ from our estimates. To the extent that the final outcome of a matter differs from the amount recorded, such difference generally will impact our provision for income taxes in the period that includes its final resolution. Reserves for uncertain tax positions including related interest and penalties were not material at February 28, 2014 or May 31, 2013.
In addition to our federal income tax return, we file income tax returns in various state jurisdictions. We are no longer subject to income tax examinations by federal and state tax authorities for years prior to 2009. The Internal Revenue Service completed their review of our federal income tax returns for 2007 through 2010 resulting in no adjustments.

LIQUIDITY AND CAPITAL RESOURCES
Working Capital. Working capital totaled $185.8 million at February 28, 2014 compared to $187.3 million at May 31, 2013, a decrease of $1.5 million. The change primarily relates to seasonal changes in working capital balances. Cash decreased $13.5 million primarily due to interest and property tax payments.
In addition to cash and cash equivalents of $47.8 million at February 28, 2014, our sources of liquidity include cash from operations and borrowings available under our senior secured revolving credit facility.
Senior Secured Revolving Credit Facility. On August 25, 2011, we amended and restated our credit agreement and the associated security agreement. The credit agreement continues to provide for a $200 million senior secured revolving credit facility with a $50 million sub-limit for letters of credit and a $15 million sub-limit for swing line loans. The credit facility matures on August 25, 2016. Amounts drawn under the credit facility bear annual interest either at the LIBOR rate plus a margin of 2.0% to 2.75% or at a base rate plus a margin of 1.0% to 1.75%. The base rate is the higher of the federal funds rate plus 0.5%, the prime rate established by Bank of America, N.A. or the one-month LIBOR rate plus 1.0%. The interest rate margins are determined based on the Company’s fixed charge coverage ratio. The commitment fee calculated on the unused portion of the credit facility ranges from 0.375% to 0.50% per year based on the Company’s average daily loan balance. We may terminate the credit facility at any time.

- 35 -

The amount that can be borrowed under the credit facility is limited to an amount called the borrowing base. The borrowing base may be less than the $200 million stated principal amount of the credit facility. The borrowing base is calculated based on the value of our accounts receivable, inventory and mobile equipment in which the lenders have a security interest. In addition, by mortgaging tracts of its real property to the lenders, the Company may increase the borrowing base by an amount beginning at $20 million and declining to $10.7 million at the maturity of the credit facility.
The borrowing base under the agreement was $140.7 million as of February 28, 2014. We are not required to maintain any financial ratios or covenants unless an event of default occurs or the unused portion of the borrowing base is less than $25.0 million, in which case we must maintain a fixed charge coverage ratio of at least 1.0 to 1.0. At February 28, 2014, our fixed charge coverage ratio was 0.92 to 1.0. Given this ratio, we may use only $115.7 million of the borrowing base as of such date. No borrowings were outstanding at February 28, 2014; however, $31.2 million of the borrowing base was used to support letters of credit. As a result, the maximum amount we could borrow as of February 28, 2014 was $84.5 million.
All of our consolidated subsidiaries have guaranteed our obligations under the credit facility. The credit facility is secured by first priority security interests in all or most of our existing and future consolidated accounts, inventory, equipment, intellectual property and other personal property, and in all of our equity interests in present and future domestic subsidiaries and 66% of the equity interest in any future foreign subsidiaries, if any.
The credit agreement contains a number of covenants restricting, among other things, prepayment or redemption of our senior notes, distributions and dividends on and repurchases of our capital stock, acquisitions and investments, indebtedness, liens and affiliate transactions. We are permitted to pay cash dividends on our common stock as long as the credit facility is not in default, the fixed charge coverage ratio is greater than 1.0 to 1.0 and borrowing availability under the borrowing base is more than $40 million. When our fixed charge coverage ratio is less than 1.0 to 1.0, we are permitted to pay cash dividends on our common stock not to exceed $2.5 million in any single instance (which shall not occur more than four times in any calendar year) or $10 million in the aggregate during any calendar year as long as the credit facility is not in default and borrowing availability is more than the greater of $60 million or 30% of the aggregate commitments of all lenders. For this purpose, borrowing availability is equal to the borrowing base less the amount of outstanding borrowings less the amount used to support letters of credit. We were in compliance with all of our loan covenants as of February 28, 2014.

9.25% Senior Notes. On August 10, 2010, we sold $650 million aggregate principal amount of our 9.25% senior notes due 2020 at an offering price of 100%. The notes were issued under an indenture dated as of August 10, 2010. The net proceeds were used to purchase or redeem all of our outstanding 7.25% senior notes due 2013, with additional proceeds available for general corporate purposes.
At February 28, 2014, we had $650 million aggregate principal amount of 9.25% senior notes outstanding. Under the indenture, at any time on or prior to August 15, 2015, we may redeem the notes at a redemption price equal to the sum of the principal amount thereof, plus accrued interest and a make-whole premium. On and after August 15, 2015, we may redeem all or a part of the notes at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest if redeemed during the twelve-month period beginning on August 15 of the years indicated below:
 
Year
Percentage
2015
104.625
%
2016
103.083
%
2017
101.542
%
2018 and thereafter
100.000
%
We may be required to offer to purchase the notes at a purchase price equal to 101% of the principal amount, plus accrued interest, if we experience a change of control.
All of our consolidated subsidiaries have unconditionally guaranteed the 9.25% senior notes. The indenture governing the notes contains affirmative and negative covenants that, among other things, limit our and our subsidiaries’ ability to pay dividends on or redeem or repurchase stock, make certain investments, incur additional debt or sell preferred stock, create liens, restrict dividend payments or other payments from subsidiaries to the Company, engage in consolidations and mergers or sell or transfer assets, engage in sale and leaseback transactions, engage in transactions with affiliates, and sell stock in our subsidiaries. We are not required to maintain any affirmative financial ratios or covenants. We were in compliance with all of our covenants as of February 28, 2014.
Contractual Obligations. As of February 28, 2014, there have been no material changes to our material contractual obligations described in our Annual Report on Form 10-K for the year ended May 31, 2013.

- 36 -

For the next year, we expect cash and cash equivalents, cash from operations, and available borrowings under our senior secured revolving credit facility to be sufficient to provide funds for capital expenditure commitments currently estimated at $30 million to $40 million, scheduled debt payments, working capital needs and other general corporate purposes.

Cash Flows
Net cash used by operating activities for the nine-month period ended February 28, 2014 was less than $1.0 million and and net cash provided by operating activities for the nine-month period ended February 28, 2013 was $9.8 million. The decrease was primarily the result of changes in working capital balances.
Net cash used by investing activities for the nine-month periods ended February 28, 2014 and 2013 was $20.5 million and $71.0 million, respectively.
Capital expenditures for normal replacement and upgrades of existing equipment and acquisitions to sustain existing operations was $26.2 million and $17.8 million in the nine-month periods ended February 28, 2014 and 2013, respectively.
Capital expenditures in connection with the expansion of our Hunter, Texas cement plant for the nine-month period ended February 28, 2014 were $7.1 million consisting solely of interest paid that was capitalized in the prior year ended May 31, 2013.
Capital expenditures incurred in connection with the expansion of our Hunter, Texas cement plant were $61.3 million in the nine-month period ended February 28, 2013, of which $38.5 million was capitalized interest paid.
Net cash provided by financing activities for the nine-month periods ended February 28, 2014 and 2013 were $7.7 million and $4.9 million, respectively.
OTHER ITEMS
Environmental Matters
We are subject to federal, state and local environmental laws, regulations and permits concerning, among other matters, air emissions and wastewater discharge. We intend to comply with these laws, regulations and permits. However, from time to time we receive claims from federal and state environmental regulatory agencies and entities asserting that we are or may be in violation of certain of these laws, regulations and permits, or from private parties alleging that our operations have injured them or their property. See Note 10 of Notes to Consolidated Financial Statements presented in Part I, Item 1 of this report for a description of certain claims. It is possible that we 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 us.
Market Risk
Historically, we have not entered into derivatives or other financial instruments for trading or speculative purposes. Because of the short duration of our investments, changes in market interest rates would not have a significant impact on their fair value. The fair value of fixed rate debt will vary as interest rates change.
The estimated fair value of each class of financial instrument as of February 28, 2014 and May 31, 2013 approximates its carrying value except for long-term debt having fixed interest rates. The fair value of our long-term debt is estimated based on broker/dealer quoted market prices. As of February 28, 2014, the fair value of our long-term debt, including the current portion, was approximately $762.8 million compared to the carrying amount of $658.8 million. As of May 31, 2013, the fair value of our long-term debt, including the current portion, was approximately $723.2 million compared to the carrying amount of $659.8 million.
Our operations require large amounts of energy and are dependent upon energy sources, including electricity and fossil fuels. Prices for energy are subject to market forces largely beyond our control. We have generally not entered into any long-term contracts to satisfy our fuel and electricity needs, with the exception of coal which we purchase from specific mines pursuant to long-term contracts. However, we continually monitor these markets and we may decide in the future to enter into additional long-term contracts. If we are unable to meet our requirements for fuel and electricity, we may experience interruptions in our production. Price increases or disruption of the uninterrupted supply of these products could adversely affect our results of operations.

Critical Accounting Policies

- 37 -

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 the more complex judgments and estimates are described in our Annual Report on Form 10-K for the year ended May 31, 2013.
Recently Issued Accounting Guidance

In July 2013, the Financial Accounting Standards Board issued new accounting guidance on the presentation of unrecognized tax benefits. This new guidance requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The new guidance becomes effective for us in our first quarter of fiscal 2015 with earlier adoption permitted, and should be applied prospectively with retroactive application permitted. We are currently evaluating the impact of the new guidance, and do not expect it to have a material effect on our consolidated financial statements.
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. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan,” “anticipate,” and other similar words. 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 our business, the cyclical and seasonal nature of our business, the level of construction activity in our markets, abnormal periods of inclement weather, unexpected periods of equipment downtime, unexpected operational difficulties, changes in the cost of raw materials, fuel and energy, changes in cost or availability of transportation, changes in interest rates, the timing and amount of federal, state and local funding for infrastructure, delays in announced capacity expansions, ongoing volatility and uncertainty in the capital or credit markets, the impact of environmental laws, regulations and claims, changes in governmental and public policy, and the risks and uncertainties described in our reports on Forms 10-K, 10-Q and 8-K and in Martin Marietta's registration statement on Form S-4 filed with the Securities and Exchange Commission in connection with the proposed merger. Forward-looking statements speak only as of the date hereof, and we assume no obligation to publicly update such statements.
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
The information regarding the fair value of our fixed rate debt is included under Market Risk in Part I, Item 2 of this report and incorporated herein by reference.
Item 4.    Controls and Procedures
We maintain 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, our Chief Executive Officer and Chief Financial Officer evaluated, with the participation of our management, the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of February 28, 2014.
There were no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

- 38 -

PART II. OTHER INFORMATION
Item 1.     Legal Proceedings
The information required by this item is included in Note 10 of Notes to Consolidated Financial Statements presented in Part I, Item 1 of this report and incorporated herein by reference.
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds
Market and Shareholders Information. Shares of our common stock, $1 par value, are traded on the New York Stock Exchange (ticker symbol TXI). The restriction on the payment of dividends is included in Note 4 of Notes to Consolidated Financial Statements presented in Part I, Item 1 of this report and incorporated herein by reference. On October 12, 2011, the Company suspended payment of its quarterly cash dividend.
Item 4.     Mine Safety Disclosures
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in exhibit 95.1 to this report.

- 39 -


Item 6.    Exhibits
The following exhibits are included herein:
 
Exhibit
Number
  
 
 
 
 
2.1

 
Agreement and Plan of Merger, dated as of January 27, 2014, among the Company, Martin Marietta Materials, Inc. and Projects Holdings, Inc. (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K, filed on January 30, 2014)
 
 
 
2.2

 
Voting Agreement, dated as of January 27, 2014, between Martin Marietta Materials, Inc. and Southeastern Asset Management, Inc. (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K, filed January 30, 2014)
 
 
 
2.3

 
Voting Agreement, dated as of January 27, 2014, between Martin Marietta Materials, Inc. and NNS Holding (incorporated by reference to Exhibit 2.3 to the Current Report on Form 8-K, filed on January 30, 2014)
 
 
 
3.1

 
Composite Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Annual Report on Form 10-K filed on July 21, 2010)
 
 
 
3.2

  
Bylaws (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on January 14, 2010)
 
 
3.3

  
Amended and Restated Certificate of Designations of Series B Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on November 1, 2006)
 
 
4.1

  
Form of the Company’s 9 1/4% Senior Note due 2020 and Notation of Guarantee (incorporated by reference to Exhibit 4.4 to Current Report on Form 8-K filed on August 11, 2010)
 
 
4.2

  
Registration Rights Agreement, dated as of August 10, 2010, among the Company and the Initial Purchasers (incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed on August 11, 2010)
 
 
4.3

  
Indenture, dated as of August 10, 2010, among the Company, the Guarantors and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on August 11, 2010)
 
 
10.1

  
Purchase Agreement, dated July 27, 2010, among the Company and the Initial Purchasers (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on August 2, 2010)
 
 
10.2

  
Third Amended and Restated Credit Agreement, dated as of August 25, 2011, among the Company, Bank of America, N.A., as Administrative Agent, Lead Collateral Agent, Swing Line Lender and L/C Issuer, Wells Fargo Bank, National Association, as L/C Issuer, Wells Fargo Capital Finance, LLC, as Co-Collateral Agent, General Electric Capital Corporation, as Co-Collateral Agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on November 30, 2011)
 
 
10.3

  
Amended and Restated Security Agreement, dated June 19, 2009, among the Company, the Guarantors and Bank of America, N. A., as Administrative Agent (incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q filed on January 7, 2010)
 
 
10.4

  
First Amendment to Amended and Restated Security Agreement, dated as of August 25, 2011, among the Company, the Subsidiary Guarantors and Bank of America, N. A., as Administrative Agent (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on November 30, 2011)
 
 
10.5

  
Employment Agreement of Mel G. Brekhus dated as of April 22, 2013 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on April 24, 2013)
 
 
10.6

  
Texas Industries, Inc. 2004 Omnibus Equity Compensation Plan, as amended (incorporated by reference to Appendix A to Proxy Statement filed on August 24, 2012)
 
 
10.7

  
Form of Stock Option Agreement under Texas Industries, Inc. 2004 Omnibus Equity Compensation Plan (incorporated by reference to Exhibit 10.10 to Annual Report on Form 10-K filed on July 25, 2006)
 
 

- 40 -

10.8

  
Form of Non-Employee Directors Restricted Stock Agreement (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on January 16, 2009)
 
 
10.9

 
Form of Restricted Stock Unit Agreement Under the Texas Industries, Inc. 2004 Omnibus Equity Compensation Plan (for time vested units) (incorporated by reference to Exhibit 10.9 to Annual Report on Form 10-K filed on July 22, 2013)
 
 
 
10.10

 
Form of Performance Restricted Stock Unit Agreement Under the Texas Industries, Inc. 2004 Omnibus Equity Compensation Plan (for performance based units) (incorporated by reference to Exhibit 10.10 to Annual Report on Form 10-K filed on July 22, 2013)
 
 
 
10.11

 
Amendment No. 3 and Restatement of SAR Agreement for Employee Directors and Assumption Under Texas Industries, Inc. 2004 Omnibus Equity Compensation Plan, by and between Texas Industries, Inc. and Mel G. Brekhus dated January 4, 2013 (incorporated by reference to Exhibit 10.7 to Quarterly Report on Form 10-Q filed on March 28, 2013)
 
 
10.12

 
Texas Industries, Inc. Management Deferred Compensation Plan (incorporated by reference to Appendix B to Proxy Statement filed on August 24, 2012)
 
 
 
10.13

  
Form of Texas Industries, Inc. Management Deferred Compensation Plan Election Agreement (incorporated by reference to Exhibit 10.13 to Annual Report on Form 10-K filed on July 22, 2013)
 
 
 
10.14

 
TXI Annual Incentive Plans-Fiscal Year 2014 (incorporated by reference to Exhibit 10.14 to Annual Report on Form 10-K filed on July 22, 2013)
 
 
 
10.15

  
TXI Three Year Incentive Plan for the Three Consecutive Fiscal Year Period Ending May 31, 2014 (incorporated by reference to Exhibit 10.18 to Annual Report on Form 10-K filed on July 15, 2011)
 
 
10.16

  
TXI Three Year Incentive Plan for the Three Consecutive Fiscal Year Period Ending May 31, 2015 (incorporated by reference to Exhibit 10.13 to Annual Report on Form 10-K filed on July 17, 2012)
 
 
10.17

 
TXI Three Year Incentive Plan for the Three Consecutive Fiscal Year Period Ending May 31, 2016 (incorporated by reference to Exhibit 10.17 to Annual Report on Form 10-K filed on July 22, 2013)
10.18

  
Master Performance-Based Incentive Plan (incorporated by reference to Appendix A to definitive proxy statement filed on August 23, 2013)
 
 
10.19

  
Deferred Compensation Plan for Directors of Texas Industries, Inc. (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on January 24, 2006)
 
 
 
10.20

  
Form of 2005 Executive Financial Security Plan (Annuity Formula), as amended (incorporated by reference to Exhibit 10.26 to Quarterly Report on Form 10-Q filed on January 7, 2010)
 
 
 
10.21

  
Form of 2005 Executive Financial Security Plan (Lump Sum Formula), as amended (incorporated by reference to Exhibit 10.27 to Quarterly Report Form 1-Q filed on January 7, 2010)
 
 
 
10.22

  
Form of Change in Control Severance Agreement (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on April 25, 2006)
 
 
 
12.1

 
Computation of Ratios of Earnings to Fixed Charges
 
 
 
15.1

  
Letter re unaudited interim financial information
 
 
 
31.1

  
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
 
 
31.2

  
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
 
 
32.1

  
Section 1350 Certification of Chief Executive Officer
 
 
32.2

  
Section 1350 Certification of Chief Financial Officer
 
 
95.1

  
Mine Safety Disclosure Exhibit
 
 

- 41 -

101

  
The following financial information from Texas Industries, Inc.’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of February 28, 2014 and May 31, 2013, (ii) Consolidated Statements of Operations for the three months and nine months ended February 28, 2014 and February 28, 2013, (iii) Consolidated Statements of Comprehensive Loss for the three months and nine months ended February 28, 2014 and February 28, 2013, (iv) Consolidated Statements of Cash Flows for the nine months ended February 28, 2014 and February 28, 2013, and (v) the Notes to Consolidated Financial Statements.


- 42 -

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.
 
 
 
April 4, 2014
 
/s/ Kenneth R. Allen
 
 
Kenneth R. Allen
 
 
Vice President – Finance and Chief Financial Officer
 
 
(Principal Financial Officer)
 
 
 
April 4, 2014
 
/s/ T. Les Vines
 
 
T. Les Vines
 
 
Vice President – Corporate Controller and Treasurer
 
 
(Principal Accounting Officer)

- 43 -

INDEX TO EXHIBITS
 
Exhibit
Number
  
 
 
 
 
2.1

 
Agreement and Plan of Merger, dated as of January 27, 2014, among the Company, Martin Marietta Materials, Inc. and Projects Holdings, Inc. (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K, filed on January 30, 2014)
 
 
 
2.2

 
Voting Agreement, dated as of January 27, 2014, between Martin Marietta Materials, Inc. and Southeastern Asset Management, Inc. (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K, filed January 30, 2014)
 
 
 
2.3

 
Voting Agreement, dated as of January 27, 2014, between Martin Marietta Materials, Inc. and NNS Holding (incorporated by reference to Exhibit 2.3 to the Current Report on Form 8-K, filed on January 30, 2014)
 
 
 
3.1

 
Composite Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Annual Report on Form 10-K filed on July 21, 2010)
 
 
 
3.2

  
Bylaws (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on January 14, 2010)
 
 
3.3

  
Amended and Restated Certificate of Designations of Series B Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on November 1, 2006)
 
 
4.1

  
Form of the Company’s 9 1/4% Senior Note due 2020 and Notation of Guarantee (incorporated by reference to Exhibit 4.4 to Current Report on Form 8-K filed on August 11, 2010)
 
 
4.2

  
Registration Rights Agreement, dated as of August 10, 2010, among the Company and the Initial Purchasers (incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed on August 11, 2010)
 
 
4.3

  
Indenture, dated as of August 10, 2010, among the Company, the Guarantors and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on August 11, 2010)
 
 
10.1

  
Purchase Agreement, dated July 27, 2010, among the Company and the Initial Purchasers (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on August 2, 2010)
 
 
10.2

  
Third Amended and Restated Credit Agreement, dated as of August 25, 2011, among the Company, Bank of America, N.A., as Administrative Agent, Lead Collateral Agent, Swing Line Lender and L/C Issuer, Wells Fargo Bank, National Association, as L/C Issuer, Wells Fargo Capital Finance, LLC, as Co-Collateral Agent, General Electric Capital Corporation, as Co-Collateral Agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on November 30, 2011)
 
 
10.3

  
Amended and Restated Security Agreement, dated June 19, 2009, among the Company, the Guarantors and Bank of America, N. A., as Administrative Agent (incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q filed on January 7, 2010)
 
 
10.4

  
First Amendment to Amended and Restated Security Agreement, dated as of August 25, 2011, among the Company, the Subsidiary Guarantors and Bank of America, N. A., as Administrative Agent (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on November 30, 2011)
 
 
10.5

  
Employment Agreement of Mel G. Brekhus dated as of April 22, 2013 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on April 24, 2013)
 
 
10.6

  
Texas Industries, Inc. 2004 Omnibus Equity Compensation Plan, as amended (incorporated by reference to Appendix A to Proxy Statement filed on August 24, 2012)
 
 
10.7

  
Form of Stock Option Agreement under Texas Industries, Inc. 2004 Omnibus Equity Compensation Plan (incorporated by reference to Exhibit 10.10 to Annual Report on Form 10-K filed on July 25, 2006)
 
 
10.8

  
Form of Non-Employee Directors Restricted Stock Agreement (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on January 16, 2009)
 
 

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10.9

 
Form of Restricted Stock Unit Agreement Under the Texas Industries, Inc. 2004 Omnibus Equity Compensation Plan (for time vested units) (incorporated by reference to Exhibit 10.9 to Annual Report on Form 10-K filed on July 22, 2013)
 
 
 
10.10

 
Form of Performance Restricted Stock Unit Agreement Under the Texas Industries, Inc. 2004 Omnibus Equity Compensation Plan (for performance based units) (incorporated by reference to Exhibit 10.10 to Annual Report on Form 10-K filed on July 22, 2013)
 
 
 
10.11

 
Amendment No. 3 and Restatement of SAR Agreement for Employee Directors and Assumption Under Texas Industries, Inc. 2004 Omnibus Equity Compensation Plan, by and between Texas Industries, Inc. and Mel G. Brekhus dated January 4, 2013 (incorporated by reference to Exhibit 10.7 to Quarterly Report on Form 10-Q filed on March 28, 2013)
 
 
10.12

 
Texas Industries, Inc. Management Deferred Compensation Plan (incorporated by reference to Appendix B to Proxy Statement filed on August 24, 2012)
 
 
 
10.13

  
Form of Texas Industries, Inc. Management Deferred Compensation Plan Election Agreement (incorporated by reference to Exhibit 10.13 to Annual Report on Form 10-K filed on July 22, 2013)
 
 
 
10.14

 
TXI Annual Incentive Plans-Fiscal Year 2014 (incorporated by reference to Exhibit 10.14 to Annual Report on Form 10-K filed on July 22, 2013)
 
 
 
10.15

  
TXI Three Year Incentive Plan for the Three Consecutive Fiscal Year Period Ending May 31, 2014 (incorporated by reference to Exhibit 10.18 to Annual Report on Form 10-K filed on July 15, 2011)
 
 
10.16

  
TXI Three Year Incentive Plan for the Three Consecutive Fiscal Year Period Ending May 31, 2015 (incorporated by reference to Exhibit 10.13 to Annual Report on Form 10-K filed on July 17, 2012)
 
 
10.17

 
TXI Three Year Incentive Plan for the Three Consecutive Fiscal Year Period Ending May 31, 2016 (incorporated by reference to Exhibit 10.17 to Annual Report on Form 10-K filed on July 22, 2013)
10.18

  
Master Performance-Based Incentive Plan (incorporated by reference to Appendix A to definitive proxy statement filed on August 23, 2013)
 
 
10.19

  
Deferred Compensation Plan for Directors of Texas Industries, Inc. (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on January 24, 2006)
 
 
 
10.20

  
Form of 2005 Executive Financial Security Plan (Annuity Formula), as amended (incorporated by reference to Exhibit 10.26 to Quarterly Report on Form 10-Q filed on January 7, 2010)
 
 
 
10.21

  
Form of 2005 Executive Financial Security Plan (Lump Sum Formula), as amended (incorporated by reference to Exhibit 10.27 to Quarterly Report Form 1-Q filed on January 7, 2010)
 
 
 
10.22

  
Form of Change in Control Severance Agreement (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on April 25, 2006)
 
 
 
12.1

 
Computation of Ratios of Earnings to Fixed Charges
 
 
 
15.1

  
Letter re unaudited interim financial information
 
 
 
31.1

  
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
 
 
31.2

  
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
 
 
32.1

  
Section 1350 Certification of Chief Executive Officer
 
 
32.2

  
Section 1350 Certification of Chief Financial Officer
 
 
95.1

  
Mine Safety Disclosure Exhibit
 
 
101

  
The following financial information from Texas Industries, Inc.’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of February 28, 2014 and May 31, 2013, (ii) Consolidated Statements of Operations for the three months and nine months ended February 28, 2014 and February 28, 2013, (iii) Consolidated Statements of Comprehensive Loss for the three months and nine months ended February 28, 2014 and February 28, 2013, (iv) Consolidated Statements of Cash Flows for the nine months ended February 28, 2014 and February 28, 2013, and (v) the Notes to Consolidated Financial Statements.


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