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
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
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,
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.
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
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
|
|
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
.
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
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
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
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:
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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.