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"). In addition, non-qualified and incentive stock options remain outstanding under our 1993 Stock Option Plan.

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, 2013. The following table sets forth the information about the weighted-average grant date fair value of options granted during the nine-month period February 29, 2012 and the weighted-average assumptions used for such grants.



	Nine months ended February 29,
	2012
Weighted average grant date fair value	$	13.80
Weighted average assumptions used:
Expected volatility	.450
Expected option term in years	6.7
Risk-free interest rate	1.31		%
Expected dividend yield	.02		%

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 periods ended February 28, 2013, follows:



	Shares Under Option		Weighted-Average Option Price
Outstanding at May 31, 2012	2,145,570		$	38.54
Exercised	(278,477	)	31.27
Canceled	(33,394	)	42.49
Outstanding at February 28, 2013	1,833,699		$	39.57
Exercisable at February 28, 2013	1,166,137		$	43.12

The following table summarizes information about stock options outstanding as of February 28, 2013.



	Range of Exercise Prices
	$16.04 - $29.38		$33.57 - $48.60		$50.63 - $70.18
Options outstanding
Shares outstanding	654,204		702,680		476,815
Weighted-average remaining life in years	6.50		5.86		3.37
Weighted-average exercise price	$	26.03	$	39.76	$	57.88
Options exercisable
Shares exercisable	306,052		383,270		476,815
Weighted-average remaining life in years	4.58		4.79		3.35
Weighted-average exercise price	$	23.25	$	40.62	$	57.87

Outstanding options expire on various dates to January 11, 2022. As of February 28, 2013, there were 2,694,873 shares available for future awards under the 2004 Plan.

As of February 28, 2013, the aggregate intrinsic value (the difference in the closing market price of our common stock of $58.05 and the exercise price to be paid by the optionee) of stock options outstanding was $35.9 million. The aggregate intrinsic value of exercisable stock options at that date was $19.5 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 $5.3 million and less than $0.7 million for the three-month periods ended February 28, 2013 and February 29, 2012, respectively and $6.3 million and $0.8 million for the nine-month periods ended February 28, 2013 and February 29, 2012, respectively.

We began issuing time-lapse RSUs to employees during the three-month period ended February 28, 2013. RSUs vest at the end of a four year term. We determine the fair value of time-lapse RSUs using the average stock price on the date 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. Employees received 92,420 RSUs during the three-month period ended February 28, 2013 with a closing stock price on the date of grant of $55.79.

We have provided additional stock-based compensation to employees and directors under stock appreciation rights contracts, deferred compensation agreements, restricted stock payments and a former stock awards program which was settled during fiscal year 2012. At February 28, 2013, outstanding stock appreciation rights totaled 133,315 shares, deferred compensation agreements to be settled in common stock totaled 4,635 shares and unvested restricted stock payments totaled 14,331 shares. Other credits include $4.1 million at May 31, 2012 representing accrued stock-based compensation which is accounted for as liabilities and expected to be settled in cash. Common stock totaling 4.5 million shares at February 28, 2013 and 2.5 million shares at May 31, 2012 have been reserved for the settlement of stock-based compensation.

Total stock-based compensation included in selling, general and administrative expense (credit) was $2.7 million and $2.9 million in the three-month periods ended February 28, 2013 and February 29, 2012, respectively and $8.2 million and $1.7 million in the nine-month periods ended February 28, 2013 and February 29, 2012, respectively. Prior to effects of the January 4, 2013 stock appreciation rights agreement and the deferred compensation agreements noted below, the impact of changes in our company's stock price on stock-based awards previously accounted for as liabilities increased stock-based compensation $1.4 million and $1.7 million in the three-month period ended February 28, 2013 and February 29, 2012, respectively. The impact of changes in our company’s stock price on stock-based awards accounted for as liabilities increased stock-based compensation $4.6 million in the nine-month period ended February 28, 2013 and reduced stock-based compensation $2.1 million in the nine-month period ended February 29, 2012.

Total tax expense or benefit recognized in our statements of operations for stock-based compensation was an expense of less than $0.1 million in the three-month periods ended February 28, 2013 and February 29, 2012 and an expense less than $0.1 million in the nine-month periods ended February 28, 2013 and February 29, 2012. No cash tax benefit was realized for stock-based compensation in the nine-month periods ended February 28, 2013 and February 29, 2012.

As of February 28, 2013, and prior to the subesquent changes described below, the total unrecognized stock-based compensation expense was $13.7 million. We currently expect to recognize in the years succeeding February 28, 2013 approximately $5.0 million of this stock-based compensation expense in 2014, $3.9 million in 2015, $3.0 million in 2016 and $1.8 million in 2017

Effective January 4, 2013 the outstanding stock appreciation rights agreement was extended and modified to require settlement in shares instead of cash. Also effective December 28, 2012, deferred compensation agreements totaling 101,790 shares were settled with shares. The results of these changes were insignificant to compensation expense. In addition, as a result of the changes, the Company will no longer face volatility in compensation expense due to the changes in the Company's stock price.