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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K/A**

**(Amendment No. 3)**

**(Mark One)**

 

**x****      Annual Report on Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,**

 

**For the fiscal year ended February 28, 2013**

 

**or**

 

**o****         Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,**

 

**For the transition period from                to                **

 

**Commission File Number 333-176538**

 

**NEW ENTERPRISE STONE & LIME CO., INC.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                    | ** ** | **23-1374051**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction

of incorporation or organization) |       | (IRS employer

identification number) |

 

| **3912 Brumbaugh Road**

**P.O. Box 77**

**New Enterprise, PA** | ** ** | **16664**  |
|-----------------------------------------------------------------------|------------|------------|
| (Address of principal executive offices)                              |       | (Zip code) |

 

Registrant’s telephone number, including area code: **(814) 766-2211**

 

Securities registered pursuant to Section 12(b) of the Act: **None**

 

Securities registered pursuant to Section 12(g) of the Act: **None**

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.  Yes o  No x

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o  No x

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K:  x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one):

 

| Large accelerated filer o |   | Accelerated filer o         |
|--------------------------------|--------|----------------------------------|
|                           |   |                             |
| Non-accelerated filer x   |   | Smaller reporting company o |

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes o  No x

 

As of February 28, 2013, there was no established public market for the registrant’s Class A Voting and Class B Non-Voting Common Stock and therefore the aggregate market value of the voting and non-voting common equity held by non-affiliates is not determinable.

 

As of September 20, 2013, the number of outstanding shares of the registrant’s Class A Voting Common Stock, $1.00 par value was 500 shares and the number of outstanding shares outstanding of the registrant’s Class B Non-Voting Stock, $1.00 par value, was 273,285.

 

DOCUMENTS INCORPORATED BY REFERENCE

None

 

 

 

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**Explanatory Note**

 

The sole purpose of this Amendment No. 3 to the Annual Report on Form 10-K/A (the “Form 10-K/A”) of New Enterprise Stone & Lime Co., Inc. (the “Company,” “we,” “us,” or “our”) for the year ended February 28, 2013, originally filed with the SEC on May 29, 2013 and amended on June 11, 2013 (collectively, the “Original Form 10-K”) and September 3, 2013 (the “September 3, 2013 Amended and Restated Form 10-K”), is to revise the “Overview” section of “Item 1 — Business” and the “General” section of “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” to clarify the percentage of revenue that the Company derives from governmental and private sector end-use markets based upon fiscal 2013 revenue.

 

This Form 10-K/A should be read in conjunction with the Company’s periodic filings made with the SEC subsequent to the filing date of the September 3, 2013 Amended and Restated Form 10-K, including any amendments to those filings, as well as any Current Reports filed on Form 8-K subsequent to the date of the September 3, 2013 Amended and Restated Form 10-K.  In addition, in accordance with applicable rules and regulations promulgated by the SEC, this Form 10-K/A includes updated certificates from our Chief Executive Officer and Chief Financial Officer as Exhibits 31.1, 31.2, 32.1, and 32.2.

 

This Form 10-K/A sets forth the September 3, 2013 Amended and Restated Form 10-K in its entirety.  It includes both items that have been changed as a result of the amended disclosure discussed above, items that were changed in connection with the September 3, 2013 Amended and Restated Form 10-K, and items that are unchanged from the September 3, 2013 Amended and Restated Form 10-K.  Other than the revision of the disclosures as discussed above and as expressly set forth herein and the amended disclosures set forth in the September 3, 2013 Amended and Restated Form 10-K, this Form 10-K/A speaks as of the original filing date of the Original Form 10-K and the September 3, 2013 Amended and Restated Form 10-K and has not been updated to reflect other events occurring subsequent to those filing dates.

 

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**CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS**

 

This Annual Report on Form 10-K for our fiscal year ended February 28, 2013 (“fiscal year 2013”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. Such statements include, in particular, statements about our plans, strategies and prospects under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” You can identify certain forward-looking statements by our use of forward-looking terminology such as, but not limited to, “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” “likely,” “will,” “would,” “could” and similar expressions that identify forward-looking statements. All forward-looking statements involve risks and uncertainties. Many risks and uncertainties are inherent in our industry and markets. Others are more specific to our operations. The occurrence of the events described and the achievement of the expected results depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from the forward-looking statements contained in this Annual Report on Form 10-K.  Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include:

 

·            material weaknesses and significant deficiencies in our internal controls over financial reporting;

 

·            risks associated with the cyclical nature of our business and dependence on activity within the construction industry;

 

·            declines in public sector construction and reductions in governmental funding which continue to adversely affect our operations and results;

 

·            our reliance on private investment in infrastructure and a slower than normal recovery which continue to adversely affect our results;

 

·            a decline in the funding of the Pennsylvania Department of Transportation, which we refer to as PennDOT, the Pennsylvania Turnpike Commission, the New York State Thruway Authority or other state agencies;

 

·            difficult and volatile conditions in the credit markets may adversely affect our financial position, results of operations and cash flows;

 

·            the potential for our lender to modify the terms of our asset-based loan facility;

 

·            the risk of default of our existing and future indebtedness, which may result in an acceleration of our indebtedness thereunder;

 

·            the potential to inaccurately estimate the overall risks, requirements or costs when we bid on or negotiate a contract that is ultimately awarded to us;

 

·            the weather and seasonality;

 

·            our operation in a highly competitive industry within our local markets;

 

·            our dependence upon securing and permitting aggregate reserves in strategically located areas;

 

·            risks related to our ability to acquire other businesses in our industry and successfully integrating them with our existing operations;

 

·            risks associated with our capital-intensive business;

 

·            risks related to our ability to meet schedule or performance requirements of our contracts;

 

·            changes to environmental, health and safety laws;

 

·            our dependence on our senior management;

 

·            our ability to recruit additional management and other personnel and our ability to grow our business effectively or successfully implement our growth plans;

 

·            the potential for labor disputes to disrupt operations of our businesses;

 

·            special hazards related to our operations that may cause personal injury or property damage;

 

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·            unexpected self-insurance claims and reserve estimates;

 

·            material costs and losses as a result of claims that our products do not meet regulatory requirements or contractual specifications;

 

·            cancellation of significant contracts or our disqualification from bidding for new contracts;

 

·            general business and economic conditions, particularly an economic downturn; and

 

·            the other factors discussed in the section of this Annual Report on Form 10-K/A titled “Item 1A—Risk Factors.”

 

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We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this Annual Report on Form 10-K/A may not in fact occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

 

**TABLE OF CONTENTS**

 
| PART I   |     |                                                                                                                  |   |
|---------------|----------|-----------------------------------------------------------------------------------------------------------------------|--------|
|          | Item 1.  | BUSINESS                                                                                                              | 6      |
|          | Item 1A. | RISK FACTORS                                                                                                          | 23     |
|          | Item 1B. | UNRESOLVED STAFF   COMMENTS                                                                                           | 31     |
|          | Item 2.  | PROPERTIES                                                                                                            | 31     |
|          | Item 3.  | LEGAL PROCEEDINGS                                                                                                     | 36     |
|          | Item 4.  | MINE SAFETY   DISCLOSURES                                                                                             | 36     |
|          |     |                                                                                                                  |   |
| PART II  |     |                                                                                                                  |   |
|          | Item 5.  | MARKET FOR   REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES   OF EQUITY SECURITIES | 36     |
|          | Item 6.  | SELECTED FINANCIAL   DATA                                                                                             | 37     |
|          | Item 7.  | MANAGEMENT’S   DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                          | 39     |
|          | Item 7A. | QUANTITATIVE   AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                          | 61     |
|          | Item 8.  | FINANCIAL   STATEMENTS AND SUPPLEMENTARY DATA                                                                         | 62     |
|          | Item 9.  | CHANGES IN AND   DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                                | 108    |
|          | Item 9A. | CONTROLS AND   PROCEDURES                                                                                             | 108    |
|          | Item 9B. | OTHER INFORMATION                                                                                                     | 114    |
|          |     |                                                                                                                  |   |
| PART III |     |                                                                                                                  |   |
|          | Item 10. | DIRECTORS,   EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                              | 115    |
|          | Item 11. | EXECUTIVE   COMPENSATION                                                                                              | 118    |
|          | Item 12. | SECURITY   OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER   MATTERS                    | 123    |
|          | Item 13. | CERTAIN   RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                           | 125    |
|          | Item 14. | PRINCIPAL   ACCOUNTANT FEES AND SERVICES                                                                              | 127    |
|          |     |                                                                                                                  |   |
| PART IV  |     |                                                                                                                  |   |
|          | Item 15. | EXHIBITS AND   FINANCIAL STATEMENT SCHEDULES                                                                          | 128    |

 

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** **

**PART I**

 

**Item 1****.****                                   ****BUSINESS.**

 

**Overview**

 

We are a leading privately held, vertically integrated construction materials supplier and heavy/highway construction contractor in Pennsylvania and western New York and a national traffic safety services and equipment provider. Founded in 1924, we are one of the top 10 construction aggregates producers based on tonnage of crushed stone produced and one of the top 50 highway contractors based on revenues in the United States, according to industry surveys.

 

We operate in three segments based upon the nature of our products and services: construction materials, heavy/highway construction and traffic safety services and equipment. Our construction materials operations are comprised of: aggregate production, including crushed stone and construction sand and gravel; hot mix asphalt production; ready mixed concrete production; and the production of concrete products, including precast/prestressed structural concrete components and masonry blocks. Another of our core businesses, heavy/highway construction, includes heavy construction, blacktop paving and other site preparation services. Our heavy/highway construction operations are primarily supplied with construction materials from our construction materials operation. Our third core business, traffic safety services and equipment, consists primarily of sales, leasing and servicing of general and specialty traffic control and work zone safety equipment and devices to industrial construction end-users.

 

Our core businesses operate primarily in Pennsylvania and western New York, except for our traffic safety services and equipment business, which maintains a national sales network for our traffic safety products and provides traffic maintenance and protection services primarily in the eastern United States.

 

Our revenue is derived from sales to customers that serve multiple end-use markets. Because of the diversity of construction materials and services that we offer, we are able to meet a wide range of customer requirements on a local scale.  We may not always know the end-use for our materials due to the diversity of our product offerings and the fact that our customers serve the various end-use markets, such as public or private sector. However, we believe based upon reasonable assumptions and knowledge of our customers and the possible end-use of particular materials and services, that in fiscal year 2013 approximately 55% to 60% of our revenue was derived from public sector end-use markets and 40% to 45% of our revenue was derived from private sector end-use markets, with approximately three-fourths of our private sector revenue being from non-residential construction. 

 

Through four generations of family management, we have grown both organically and by acquisitions and now operate 52 quarries and sand deposits, 30 hot mix asphalt plants, 19 fixed and portable ready mixed concrete plants, four concrete products production plants, three lime distribution centers and six construction supply centers. Our traffic safety services and equipment business operates five manufacturing facilities and has sales facilities throughout the continental United States. We believe our extensive operating history and industry expertise, combined with strategically located operations and substantial aggregate reserves throughout Pennsylvania and western New York, enable us to be a low-cost supplier, as well as an operator with an established execution track record.

 

**Corporate Information**

 

New Enterprise Stone & Lime Co., Inc. (which we refer to as NESL) is a Delaware corporation initially formed as a partnership in 1924. Our principal executive offices are located at 3912 Brumbaugh Road, P.O. Box 77, New Enterprise, PA 16664, and our telephone number is (814) 766-2211.

 

**Our Markets**

 

Our vertically integrated construction materials and heavy/highway construction businesses operate in competitive regional markets. Many of our contracts are awarded based on a “sealed bid” process, which dictates that the lowest price bidder must be chosen. This dynamic forces us to compete against major, national suppliers and smaller, local operators. We believe that our extensive operational footprint and local market knowledge allow us to bid effectively on jobs, to obtain a unique understanding of our customers’ evolving needs and, most critically, to maintain favorable positions in the markets for our products and services, enabling us to submit lower price bids while maintaining our profitability.

 

We maintain strategically located construction materials operations across Pennsylvania and western New York. We also provide heavy/highway construction services, primarily in Pennsylvania and, to a lesser degree, into Maryland, West Virginia and Virginia. We operate traffic safety equipment manufacturing facilities and sell these products across the United States and we provide maintenance and traffic protection services primarily in the eastern United States.

 

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*Pennsylvania and Western New York*

 

We operate primarily throughout Pennsylvania and western New York. The geography and natural resources of this area contribute to this region being one of the largest consumers of construction aggregates in the United States.

 

Pennsylvania, which was the third largest producer of construction aggregates and the sixth largest producer of concrete in the United States in 2012, is located between the major consumer markets of the eastern United States and the large agricultural and industrial regions of the Midwestern United States, with an extensive and heavily utilized interstate system connecting the two. In addition, the state has a widely dispersed and dense rural population that requires approximately 120,000 miles of paved roads throughout the state that must be maintained on a regular basis. A high percentage of the state’s roads are built in frost susceptible areas which, when subject to the typical freeze-thaw cycles of Pennsylvania’s climate, create excess pavement stresses, deformation and surface degradation, all requiring road maintenance.

 

The Appalachian ridge, located in the central part of the state and close to many of our facilities, contains expansive coal strip mining production and Marcellus Shale’s gas well drilling and pipeline expansion, all of which require extensive road networks, and related road maintenance, that provide an additional market for our construction materials and heavy/highway construction. This same area has been the site of recent wind farm expansion. The construction of wind farms and the associated power generation facilities consume substantial amounts of aggregates and ready mixed concrete.

 

The geography and natural resources of Pennsylvania, western New York and the surrounding states provide a robust market for our product offerings. Geographically, the locations of our quarries allow us to reach a large market area in Pennsylvania and the western part of New York. Our highway construction division can perform work throughout Pennsylvania and is able to respond to this market with aggregates, concrete, blacktop paving and highway construction services. Furthermore, our geographically diverse facilities are situated to maximize the consumption trends in this region. The higher growth areas of eastern Pennsylvania have slowed during the recession. Conversely, our western and central Pennsylvania and New York locations are focused on the less cyclical core highway maintenance and heavy/highway construction, as well as the more stable residential and agricultural needs in these areas.

 

*Public Sector*

 

Public sector construction includes spending by federal, state and local governments for highways, bridges and airports, as well as other infrastructure construction for sewer and waste disposal systems, water supply systems, dams, reservoirs and other public construction projects. Generally, public sector construction spending is more stable than private sector construction. Public sector spending is less sensitive to interest rates and often is supported by multi-year legislation and programs. A significant portion of our revenue is from public highway construction projects. As a result, the funding for public highway construction significantly impacts our market.

 

The level of state spending on infrastructure varies across the United States and depends on the needs and economies of individual states. However, a large part of any state’s public expenditure on transportation infrastructure is a factor of the amount of federal funds it receives for such purposes. During its fiscal year ended June 30, 2012, PennDOT spent approximately $7.0 billion on transportation projects and administration, which includes its federal funds allocation of approximately $1.5 billion. In addition, the Pennsylvania Turnpike Commission, the roads of which are located near many of our facilities, receives toll revenue less susceptible to variations in state funding which it utilizes for its maintenance and construction operations. The Pennsylvania Turnpike Commission’s Ten-Year Capital Plan for the fiscal year ending May 31, 2013 is $6.8 billion, approximately 90% of which amount is allocated to the cost of resurfacing, replacing or reconstructing the existing turnpike system. The New York Thruway, also in our market area, is a toll road with dedicated funding outside of the New York Department of Transportation.

 

*Private Sector*

 

This market includes both non-residential and residential construction and is more cyclical than public construction.

 

Private non-residential construction includes a wide array of project types. Overall demand in private non-residential construction is generally driven by job growth, vacancy rates, private infrastructure needs and demographic trends. The growth of the private workforce creates a demand for offices, hotels and restaurants. Likewise, population growth generates demand for stores, shopping centers, warehouses and parking decks as well as hospitals, schools and entertainment facilities. Large industrial projects, such as a new manufacturing facility, can increase the need for other manufacturing plants to supply parts and assemblies, as well as the need for additional residential construction. Construction activity in this end-market is influenced by the ability to finance a project and the cost of such financing.

 

The majority of residential construction is for single-family houses with the remainder consisting of multi-family construction (*i.e*., two family houses, apartment buildings and condominiums). Public housing comprises a small portion of housing demand. Construction activity in this end-market is influenced by the cost and availability of mortgage financing. Demand for our products

 

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generally occurs early in the infrastructure phase of subdivision development and residential construction, and later as part of driveways or parking lots.

 

United States housing starts peaked in 2005 at just over 2.0 million units. From 2007 to 2009, housing starts declined approximately 25% to 40% in each year.  Housing starts began to increase modestly in 2010 and 2011, with an approximate 6% and 4%, increase, respectively, and then increased significantly in 2012, with a 25% improvement, according to the National Association of Homebuilders. The housing starts in the Pennsylvania market in which we operate had a similar decline and rebound. We believe lower home prices and attractive mortgage interest rates are positive factors that should continue to impact single-family housing construction in 2013 and beyond.

 

Consistent with past cycles of private sector construction, private non-residential construction remained strong after residential construction peaked in 2006. However, in late 2008, contract awards for non-residential buildings in the United States peaked. By April 2011, contract awards for non-residential construction had declined approximately 40% from its peak in 2008 and then began to rise modestly at the end of 2011 and into 2012.

 

**Our Competitive Strengths**

 

The following characteristics provide us with competitive advantages relative to others that operate in our markets. While our competitors may possess one or more of these strengths, we believe we are a leader in our markets because of our full complement of these attributes. Our strengths include:

 

*Leading Market Positions*

 

We are one of the top 10 construction aggregates producers based on tonnage of crushed stone produced and one of the top 50 largest highway contractors based on revenues in the United States, according to industry surveys. These leading market positions are driven by our regionally focused operational footprint, which facilitates efficient, low-cost product delivery and responsiveness to customer demands, which are essential to maintaining existing customers and securing new business.

 

*Vertically Integrated Business Model*

 

We generate revenue across a spectrum of related products and services. We are able to mine our quarries to extract aggregates that we use to produce ready mixed concrete and hot mix asphalt materials, which may be utilized by our heavy/highway construction business to service end customers. Our vertically integrated business model enables us to operate as a single source provider of materials and construction capabilities, creating economic, convenience and reliability advantages for our customers, while at the same time creating significant cross-marketing opportunities among our interrelated businesses. Our vertical integration model, combined with the breadth of our construction materials offerings, enhances our position as a construction materials supplier and as a bidder on complex multi-discipline construction projects. In instances where we may not win a local construction contract, for example, we may often serve as a subcontractor or significant supplier to the winning bidder, creating additional revenue opportunities.

 

*Favorable Market Fundamentals*

 

We work extensively for PennDOT and other governmental entities within Pennsylvania which are responsible for the state’s roads and highways. Pennsylvania’s diversified economy is heavily reliant on the state’s approximately 120,000 miles of interstate, state and local roads, and approximately 22,000 state and local bridges. Pennsylvania has the nation’s sixth largest gross state product and the nation’s eleventh largest road network, which serves as a critical highway transportation route connecting Midwestern manufacturing centers and the northeast corridor. The Pennsylvania State Transportation Advisory Committee, in its report dated May 2010, identified over $3.5 billion of annual unmet state and local highway and bridge funding needs in excess of currently available funding levels. In a recent Pennsylvania Senate Transportation Committee Report, approximately 23% of the state owned roads were rated poor and 18% and 34% of the state and local owned bridges, respectively, were rated structurally deficient.  In February 2013, Governor Corbett announced a plan to increase annual transportation funding by $1.8 billion. In April 2013, several Pennsylvania state senators, including the Chairman of the Senate Transportation Committee, proposed a senate bill that would add approximately $2.5 billion to be utilized for state and local highway and bridge maintenance and repair. While there is no assurance that such a bill will be enacted, the market for highway and bridge construction in Pennsylvania will be favorably impacted if the state legislature ultimately approves additional highway and bridge funding.  We believe our construction materials locations, understanding of various specifications, project management and skilled labor position us to take advantage of these favorable dynamics and enable us to provide competitive bids on most public sector projects in Pennsylvania.

 

*Substantial Reserve Life*

 

We estimate that we currently own or have under lease approximately 2.0 billion tons of permitted proven recoverable and probable recoverable aggregate reserves,

 

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with an average estimated useful life of 115 years at current production levels. These reserves are located across our market area, creating a balanced distribution of reserves to serve customers across our markets. With our long operating experience and local knowledge, we believe we are highly qualified to efficiently identify and develop new quarry opportunities or quarries that become available for acquisition.

 

*High Barriers to Entry*

 

We benefit from barriers to entry that affects both potential new market entrants and existing competitors operating within or near our markets. The high weight-to-value ratio of aggregates and concrete products and the time in which hot mix asphalt and ready mixed concrete begin to set limit the efficient distribution range for these products to roughly a one-hour haul time. Our regionally focused operational footprint allows us to maintain lower transportation costs and compete effectively against large and small players in our local markets.

 

Quarry and construction operations are inherently asset intensive and require significant investments in land, high-cost equipment and machinery, resulting in significant start-up costs for a new business. We own most of the equipment and machinery used at our facilities, creating an advantage over potential market entrants. The complex regulatory environment and time-consuming permitting process, especially for opening new quarries, add further start-up costs and uncertainty for new market entrants.

 

Our regional focus and local knowledge, acquired through decades of operating experience, enhance our ability to bid effectively and win profitable contracts. We believe our experience allows us to distinguish ourselves from other competitors in this regard.

 

*Experienced and Dedicated Management Team*

 

Our senior management team includes certain third and fourth generation members of our founding family, the Detwiler family, who have spent a significant portion of their professional careers in the aggregate and heavy construction businesses and are complemented and supported by highly trained and experienced senior managers who came to us through various acquisitions and internal advancement. Our Chairman, Paul Detwiler, Jr., and our Vice Chairman, Donald Detwiler, have spent their entire careers working at NESL (54 and 47 years, respectively), with Paul’s expertise centered on the operation of the plants and quarries and Donald’s focused on the heavy/highway construction business. Two of Paul, Jr.’s sons, Paul Detwiler, III and Steven Detwiler hold senior management positions and serve on our Board of Directors and Executive Committee. Our Chief Executive Officer and President, Paul Detwiler, III, joined us in 1981. Steven Detwiler joined us in 1990 and currently serves as Senior Vice President-Construction Materials and President of our Buffalo Crushed Stone Division. Albert Stone became our Chief Financial Officer on March 22, 2013. Mr. Stone has been in the aggregates and heavy/highway construction business since 1986.  G. Dennis Wiseman joined us in 1984 and currently serves as our Chief Accounting Officer and Assistant Secretary. The senior management team is complemented and supported by a large number of talented, highly trained and experienced senior managers with an average of approximately 34 years of experience. Our senior management team makes joint decisions on all major operating issues including capital deployments, acquisitions and expansions. Other corporate responsibilities are divided among the senior management group to ensure adequate contingency planning and leadership across all of our segments and divisions. We continue to focus on succession planning and focus on growing our company management from our internal ranks. Accordingly, we believe our management team has served and will continue to serve a critical role in our growth and profitability. Management remains dedicated to continuing to develop our operations and executing our business strategy as we continue to grow the business. We have management and leadership training programs in place and have trained hundreds of employees over the years so that we are not dependent on the outside market place to fill open positions. Members of the Detwiler family, who control all of the voting equity of NESL, have demonstrated a commitment to continued reinvestment in NESL. With the exception of certain tax-related dividends, we have not issued a dividend to any of our equity holders in 20 years.

 

**Our Business Strategy**

 

We are focused on growing our sales, profitability and cash flow and strengthening our balance sheet by capitalizing on our competitive strengths and reinvesting in our core businesses. Key elements of our business strategy include:

 

*Leverage Our Vertically Integrated Business Model*

 

We generate revenue across a spectrum of related products and services, many of which comprise a vertically integrated business that provides both raw materials and construction services. By maintaining production and cost control over this vertically integrated supply chain, we believe we are better able to serve our customers and be a low-cost supplier. We intend to leverage this vertical integration to continue to minimize our costs, improve our customer service and win profitable new business.

 

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*Maintain a Competitive Position in Our Markets*

 

We are competitive in the areas we serve due to our extensive network of quarries and related operations that facilitate efficient distribution throughout our geographical market area. We believe that our vertically integrated model, including our network of operational facilities, as well as our tightly managed costs, project management, safety and educational training, technological improvements and value engineering focus all further drive our low-cost position. We continuously work to exploit new technologies, such as implementing improved global positioning systems to monitor truck delivery activity and increase precision in construction projects. These technological improvements, coupled with our comprehensive employee training program and health and safety training programs and policies, allow us to make optimal use of our employees and equipment, operate safely and lower our insurance claims. Our extensive operating experience allows us to identify value engineering opportunities on certain projects, allowing us to propose enhancements to project specifications which we believe save our customers money and enhance our profitability. The mechanics of the “sealed bid” process that govern many of our contract awards require that we submit a bid that is low enough to win the business, but also includes a margin sufficient to maintain profitability. We will continue to manage our business aggressively to minimize costs to ensure that we are positioned to continue to win competitive, profitable new business in our markets.

 

*Capitalize on Our Strategically Located Operations to Expand Market Share*

 

We believe our existing operational footprint places us in proximity to some of the strongest market opportunities in the mid-Atlantic and western New York regions. Our proximity to areas of high construction activity, including the extensive Pennsylvania and western New York road networks and the Pennsylvania coal and gas industries, creates attractive revenue opportunities for which we are particularly well positioned relative to both major, national and smaller, local competitors. We believe our strategically situated construction materials locations create an inherent competitive advantage for us in our markets. We intend to continue to capitalize on these advantages to increase revenues and drive profitability. In those instances where our construction materials locations do not create an inherent competitive advantage, we remain competitive through our local knowledge of required specifications and industry expertise.

 

*Drive Profitable Growth Through Reinvestment*

 

Through over 86 years of operations, we have developed significant experience and expertise in identifying and executing new growth opportunities. We expect to continue to enhance our overall competitive position and customer base by reinvesting in our business. We also anticipate that we will leverage our experience to develop more greenfield quarry locations within or adjacent to our current markets.

 

**Our Industry**

 

Our core construction materials, heavy/highway construction and traffic safety services and equipment businesses are organized to deliver customers products and services from six interrelated industry sectors:

 

·            aggregates;

 

·            hot mix asphalt;

 

·            ready mixed concrete;

 

·            concrete products;

 

·            heavy/highway construction; and

 

·            traffic safety services and equipment.

 

Competitors in these industries range from small, privately held firms that produce a single product, to multinational corporations that offer a comprehensive suite of construction materials and services, including design, engineering, construction and installation. However, day-to-day execution for construction materials for all competitors remains local or regional in nature based upon typical value-to-weight ratios which limit the distance construction materials can be transported in a cost effective manner.

 

Transportation infrastructure projects represent a substantial portion of the overall U.S. infrastructure market. These projects are driven by both state and federal funding programs. During 2012, the U.S. Congress passed a two year funding bill, Moving Ahead for Progress, or MAP-21, which provides relatively flat infrastructure funding for Pennsylvania as compared to the previous federal

allocation. With approximately 120,000 miles of interstate, state and local roads and approximately 22,000 state and local bridges,

 

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Pennsylvania currently has the fifth largest allocation of the Federal Highway Trust Fund budget, receiving approximately $1.5 billion annually.

 

In addition to federal funding, highway construction and maintenance funding is also available through state agencies. In Pennsylvania, new highway and bridge construction and maintenance is coordinated by PennDOT. During its fiscal year ended June 30, 2012, PennDOT spent approximately $7.0 billion on transportation projects and administration, which includes its federal funds allocation. Typically the federal government funds a portion of PennDOT’s annual budget, while Pennsylvania funds the balance through the Motor License Fund, which we refer to as MLF. MLF funds are mandated per the state constitution to fund expenditures on highways and bridges and may not be reallocated to other state funding needs in the annual budgeting process. The Pennsylvania Turnpike Commission has a budget that is currently separate from PennDOT. The Pennsylvania Turnpike Commission’s Ten-Year Capital Plan for the fiscal year ending May 31, 2013 was $6.8 billion, approximately 90% of which amount is allocated to the cost of resurfacing, replacing or reconstructing the existing turnpike system.

 

PennDOT and the Pennsylvania Turnpike Commission have historically provided consistent demand for construction materials and projects in our markets. In addition, we also bid on purchase order contracts for hot mix asphalt and aggregates supplied directly to PennDOT maintenance districts and municipalities.

 

***Construction Materials***

 

*Aggregates*

 

The aggregates industry generated over $17.7 billion in sales through the production and shipment of 2.0 billion metric tons in 2012 in the United States, according to the United States Geological Survey, which we refer to as USGS. Aggregates include materials such as gravel, crushed stone, limestone and sand, which are primarily incorporated into construction materials, such as hot mix asphalt, cement and ready mixed concrete. Aggregates are also used for various applications and products, such as railroad ballast, filtration, roofing granules and in solutions for snow and ice control. The U.S. aggregate industry is highly fragmented with numerous participants operating in localized markets. The USGS reported that a total of 1,550 companies operating 4,000 quarries and 91 underground mines produced or sold crushed stone valued at $11.0 billion in 2012 in the United States.

 

Transportation cost is a major variable in determining aggregate pricing and marketing radius. The cost of transporting aggregate products from the plant to the market often equates to or exceeds the sale price of the product at the plant. As a result of the high transportation costs and the large quantities of bulk material that have to be shipped, finished products are typically marketed locally. High transportation costs are responsible for the wide dispersion of production sites. Where possible, construction material producers maintain operations adjacent to highly populated areas to reduce transportation costs and enhance margins.

 

The demand for aggregates is a function of several factors, including transportation infrastructure spending and changes in population density. In the past few years, the recession in the United States has led to a decrease in overall private construction activity. Despite the increase in federal stimulus spending, public construction activity has also suffered a decline over this period. Crushed stone production was approximately 1.24 billion tons in 2012, a 7% increase compared with that of 2011. Apparent consumption also increased to approximately 1.28 billion tons. Demand for crushed stone was slightly higher in 2012 because of the apparent end of the slowdown in activity that some of the principal construction markets have experienced during the last 6 years. Long-term increases in construction aggregates demand will be influenced by activity in the public and private construction sectors, as well as by construction work related to security measures being implemented around the nation. The underlying factors that would support a rise in prices of crushed stone are expected to be present in 2013, especially in and near metropolitan areas. With U.S. economic activity slowly improving, construction sand and gravel output for 2012 increased about 5% compared with that of 2011. The total number of employees in the U.S. construction sand and gravel industry increased by 6% in 2012 compared with that of 2011. Growth in housing starts in 2012 is increasing demand for construction sand and gravel in many states. Growth was also seen in some nonresidential construction, especially within the sectors of communications, power generation, and non-highway transportation.

 

We believe that the long-term growth of the market for aggregates is largely driven by growth in population, jobs and households. While short-term and medium-term demand for aggregates fluctuates with economic cycles, the declines have historically been followed by strong recovery, with each peak establishing a new historical high.

 

A significant portion of our aggregates is utilized in heavy/highway construction projects. Highways located in our markets are particularly vulnerable to freeze-thaw conditions that lead to excessive pavement stress and surface degradation conditions. The highway pavement deterioration in our markets is accelerated by the large volume of intrastate and interstate trucking in Pennsylvania given its location between the eastern United States consumer markets and other agricultural and industrial regions of the United States. Surface maintenance repairs, as well as general highway construction and repair, occur in the warmer months. Heavy/highway construction in our target markets tends to be similarly seasonal. As a result, our aggregate business is seasonal in nature as the

majority of production and sales occur in the eight months between April and November.

 

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*Hot Mix Asphalt*

 

Hot mix asphalt is the most commonly utilized pavement surface. Hot mix asphalt is produced by mixing asphalt cement and aggregate. The asphalt cement is heated to increase its viscosity and the aggregate is dried to remove moisture from it prior to mixing. Paving and compaction must be performed while the asphalt is sufficiently hot, typically within a one-hour haul from the production facility. In many parts of the country, including the market in which we operate, paving is generally not performed in the winter months because of cold temperatures.

 

Asphalt pavement is one of the building blocks of the United States. The United States has more than two million miles of paved roads and highways, 94% of which are surfaced with asphalt.

 

The United States has approximately 4,000 asphalt plants. Each year, these plants produce 500 million tons of asphalt pavement material worth in excess of $30 billion. Asphalt pavement material is a precisely engineered product composed of approximately 95% stone, sand and gravel by weight, and approximately 5% asphalt cement, a petroleum product. Asphalt cement acts as the glue to hold the pavement together.

 

Asphalt is the United States’ most recycled material. Reclaimed asphalt pavement is reusable as an aggregate mixture. In addition, the asphalt cement in the reclaimed pavement when reheated is reactivated to become an integral part of the new pavement. The recycled asphalt pavement replaces part of the new liquid asphalt cement required for the mixture, thereby reducing costs for asphalt mixtures.

 

*Ready Mixed Concrete*

 

Demand for ready mixed concrete is driven by its highly versatile end use applications. The ready mixed concrete industry generated approximately $30 billion in sales in 2012, according to the National Ready Mixed Concrete Association. Ready mixed concrete is created through the combination of coarse and fine aggregates with water, various chemical admixtures and cement. Given the high weight-to-value ratio, delivery of ready mixed concrete is typically limited to a one-hour haul from a production plant location and is further limited by a 90 - minute window in which newly mixed concrete must be poured to maintain quality and desired performance characteristics. Most industry participants produce ready mixed concrete in batch plants and use concrete mixer trucks to deliver the concrete to customers’ job sites. Ready mixed concrete, which is poured in place at a construction site, can compete with other precast concrete products and concrete masonry block products.

 

According to the National Ready Mixed Concrete Association, it is estimated that that there are approximately 5,500 ready mixed concrete plants in the United States. The North American ready mixed concrete industry is highly fragmented. Given that the concrete industry has historically consumed approximately 75% of all cement produced annually in the United States, many cement companies choose to be vertically integrated. Additionally, we face competition from precast concrete manufacturers.

 

*Concrete Products*

 

Precast and prestressed concrete products are utilized in highway construction to build bridges and decks and in non-residential construction to build a broad range of large structures such as parking garages, prison cells and sports stadium risers. Precast and prestressed concrete products offer many building advantages, including flexibility in design, speed to completion and low maintenance.

 

Masonry blocks are widely used in the construction of buildings, such as foundations, arches and retaining walls, due to their durability and relative low cost. Most of the companies that produce masonry blocks, such as ours, also produce other concrete-related products, including architectural block, pavers and franchised building systems such as Anchor ® Segmental Retaining Walls, which can be manufactured centrally and shipped to the point of installation.

 

***Heavy/Highway Construction***

 

Heavy/highway construction businesses provide a broad range of transportation and site preparation construction services, including grading and drainage, building bridge structures and concrete and blacktop paving services. While we provide services for a range of projects from driveway construction to the construction of new interstate highways, our business is primarily focused on structures, road construction and maintenance and blacktop/concrete paving. In general, the highway construction industry’s growth rate is directly related to federal and state transportation agencies’ funding of road, highway and bridge maintenance and construction. While public sector spending for highway construction has increased over the past two years, primarily as a result of federal stimulus money released under the American Recovery and Reinvestment Act, the simultaneous decrease in private sector spending has resulted in a contraction of the overall market. In Pennsylvania, public spending on third-party highway construction in 2012 was approximately $2.0 billion due to reallocation of funds by the state that shifted funds from certain other existing projects. Public spending on third-party highway construction for 2013 is budgeted at approximately $1.7 billion.

 

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We stand to benefit from the additional federal investments in our core Pennsylvania and western New York markets as municipal, state, and federal agencies represent our largest customer base. We believe we will also benefit from the renewed emphasis on investments in Pennsylvania’s transportation and highway systems at the state level. Along with the rest of the country, Pennsylvania has decreased its highway construction, but it has not kept pace with its growing investment needs.

 

The Pennsylvania Transportation Advisory Committee finalized a Transportation Funding Study in May 2010 which concluded that Pennsylvania needs to invest an additional $3.5 billion annually from federal, state and local sources, which investment must grow with inflation, if Pennsylvania is going to upgrade its infrastructure and maintain it in a state of good repair. The recommended funding needs for highways and bridge construction and maintenance in the study for 2010 were $2.6 billion in additional funds for state-owned facilities and $432 million for local government projects. To address these needs, the Governor appointed the Transportation Funding Advisory Committee, or TFAC, in 2011.  TFAC provided a final recommendation in its report dated August 2011 that is a partial solution to the $3.5 billion annual shortfall by developing additions to the existing revenue stream equal to $2.7 billion annually. The majority of the income comes by incrementally increasing the cap on the state’s Oil Company Franchise Tax.

 

In February 2013, Pennsylvania Governor Corbett unveiled a plan to raise $1.8 billion annually for transportation needs. The increased spending would occur incrementally over a 5-year period. More recently, in April 2013, Senate Transportation Committee Chairman John Rafferty announced his plan which would raise $2.5 billion annually over a 3-year period. Both plans rely on the Pennsylvania Oil Company Franchise Tax limit being lifted over time. The senator’s plan also includes increasing fees and fines. There can be no assurance that either these plans will be enacted or, if enacted, the extent of the funding provided by such legislation.

 

***Traffic Safety Services and Equipment***

 

The traffic safety services and equipment industry comprises companies that produce, sell and set up traffic safety equipment in the United States. Traffic safety products generally consist of portable products such as message boards, arrow boards and speed awareness monitors, as well as traffic cones, barrels and signs. Demand for traffic safety services and equipment is particularly sensitive to changes in activity in the highway construction end-market. While significant challenges to the traffic safety equipment industry remain due to the recent economic downturn, we believe that the long-term growth prospects for the industry are favorable, given increasingly stringent highway and workplace safety regulations and standards, in addition to an anticipated cyclical recovery in highway spending.

 

**Our Operations**

 

We operate our construction materials, heavy/highway construction and traffic safety services and equipment businesses through local operations and marketing teams, which work closely with our end customers in the local markets where we operate. We believe that this strong local presence gives us a competitive advantage by keeping our costs low and allows us to obtain a unique understanding for the evolving needs of our customers.

 

We have construction material operations across Pennsylvania and western New York. We provide heavy/highway construction services in these markets and, to a lesser degree, Maryland, West Virginia and Virginia. We operate traffic safety equipment manufacturing facilities and sell these products across the United States. Additionally, we provide maintenance and traffic protection services primarily in the eastern United States.

 

**Construction Materials**

 

We are a leading provider of construction materials in Pennsylvania and western New York. Our construction materials operations are comprised of aggregate production, including crushed stone and construction sand and gravel; hot mix asphalt production; ready mixed concrete production; and the production of concrete products, including precast/prestressed structural concrete components and masonry blocks. We also operate transportation facilities complete with deep water port facilities for bulk cargo storage, railroad transportation and other transportation and distribution at the Port of Buffalo.

 

Our largest construction materials customer is our heavy/highway construction operations which are almost wholly supplied with our construction materials.  Additionally, our largest external customer is PennDOT.

 

***Our Aggregate Operations***

 

*Aggregate Products*

 

We mine limestone, sandstone, dolomite, clay, gravel, white quartzite and other natural resources from 52 quarries and sand

 

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deposits throughout Pennsylvania and western New York. Aggregates are produced mainly from blasting hard rock from quarries and then crushing and screening it to various sizes to meet our customers’ needs. The production of aggregates also involves the extraction of sand and gravel, which requires less crushing, but still requires screening for different sizes. Aggregate production utilizes capital intensive heavy equipment which includes the use of loaders, large haul trucks, crushers, screens and other heavy equipment at quarries.  According to the USGS, we were the tenth largest crushed stone producer in the United States in 2011.

 

Once extracted, the minerals are processed and/or crushed on site into crushed stone, concrete and masonry sand, specialized sand, pulverized lime or agricultural lime. The minerals are processed to meet customer specifications or to meet industry standard sizes. Crushed stone is used in ready mixed concrete, hot mix asphalt, the construction of road base for highways, ditch and pipe bedding, drainage channels, retaining walls and backfill. Our sand products are used in the production of masonry grout, ready mixed concrete and hot mix asphalt as well as sand traps on golf courses, baseball fields and landfill cover. Pulverized limestone is primarily used as an absorbent for sulfur dioxide gases in power generation. Farmers use agricultural lime to reduce the acidity level in soil and enhance crop growth.

 

Transportation cost is a major variable in determining aggregate pricing and marketing radius. The cost of transporting aggregate products from the plant to the market often equates to or exceeds the sale price of the products at the plant. As a result of high transportation costs and the large quantities of bulk material that have to be shipped, finished products are typically marketed locally. High transportation costs are responsible for the wide dispersion of production sites. Where possible, construction material producers maintain operations adjacent to highly populated areas to reduce transportation costs and enhance margins. Our operations near Allentown, Pennsylvania are located in a strategic position of the densely populated eastern Pennsylvania corridor and our Buffalo, New York operations are also in an area of high population density.

 

However, more recently, rising land values combined with local environmental concerns are forcing production sites to move further away from the end-use locations. Our extensive network of quarries, plants and facilities, located throughout Pennsylvania, New York and Delaware ensures that we have a nearby operation to meet the needs of customers in Pennsylvania, New York, Delaware, Maryland, West Virginia, Virginia and New Jersey.

 

*Aggregate Markets*

 

The shipping distance from each quarry and the proximity to competitors are key factors that determine the geographic market area for each quarry. Each quarry location is unique in that demand for each product, proximity to competition and truck availability are different. Accordingly, our aggregate customers are generally located within Pennsylvania, Delaware, northern Maryland and western New York.

 

*Aggregate Reserves*

 

Through acquisitions of raw land and existing quarries, we have assembled significant operating reserves throughout our geographic market area. We estimate that we currently own or have under lease approximately 2.0 billion tons of permitted proven recoverable and probable recoverable aggregate reserves, with an average estimated useful life of 115 years at current production levels.  See “Item 2 — Properties.”

 

*Aggregate Sales and Marketing*

 

Each of our aggregate operations is responsible for the sale and marketing of its aggregate products. The method that each entity employs to sell aggregates is similar and varies by customer type. Standard price lists are developed for each construction season. This list is used to establish a list price and is typically discounted for contractors or special customers. Large orders are quoted to each contractor in a bidding process and pricing is established based on plant and haul costs, plus appropriate margins.

 

Most bids to non-governmental agencies are either accepted or negotiated with the end result being a purchase order at a fixed price for a specified amount during a given period of time. Bids submitted directly to a governmental agency generally utilize the low bid process. The low bidder is responsible for providing the material within specifications at a specific location for the bid price. We will also negotiate long-term (greater than one year) supply contract agreements at predetermined prices.

 

*Aggregate Competition*

 

The U.S. aggregate industry is highly fragmented with numerous participants operating in localized markets. The USGS reported that a total of 1,550 companies operating 4,000 quarries and 91 underground mines produced or sold crushed stone in 2012 in the United States. This fragmentation is a result of the cost of transporting aggregates, which limits producers to a market area within 100 miles of their production facilities.

 

Lehigh Hanson Building Materials America, PLC (a unit of Heidelberg Cement Group), Oldcastle, Inc. and Lafarge Corporation are our largest aggregate producer competitors across all of our market areas.

 

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***Our Hot Mix Asphalt Operations***

 

*Hot Mix Asphalt Products*

 

Our hot mix asphalt products are produced by heating asphalt cement to increase its viscosity and drying the aggregate to remove moisture from it prior to mixing. Hot mix asphalt consists of approximately 95% stone, sand and gravel by weight, and approximately 5% of asphalt cement that serves as a binder. The aggregates used for our production of these products are generally supplied from internal sources through our construction materials division and through purchases of bitumen from third party suppliers. Since bitumen is a by-product of petroleum refining, the price of this material is aligned with the price of oil. The asphalt and aggregates mixture is heated to a temperature of approximately 300 degrees Fahrenheit. While still hot, the paving mixture is transported by truck to a mechanical spreader where it is placed in a smooth layer and compacted by rollers.

 

As part of our vertically integrated structure, we operate 30 hot mix asphalt plants and seven blacktop paving divisions.

 

*Hot Mix Asphalt Markets*

 

Our hot mix asphalt businesses operate independent paving crews that service various markets. Our Pennsylvania hot mix asphalt plants generate the majority of their revenue through sales to our heavy/highway construction division, which then places the material under contract with the owner, typically a governmental agency such as PennDOT or the Pennsylvania Turnpike Commission. Our New York operation does not operate any paving crews, but does sell hot mix asphalt to paving contractors.

 

Each hot mix asphalt plant is unique in that demand for hot mix asphalt, proximity to competition; transportation costs and supply of aggregates are different. Most of our hot mix asphalt operations use a combination of company- owned and hired haulers to deliver materials. Hauling costs can range from 5% to 20% of the total cost of the materials. To optimize crew demand and costs, each hot mix asphalt operation has a fleet manager and plant dispatchers. Our New York operations contract for delivery and do not have their own delivery trucks.

 

Aggregates are another major factor in the cost of producing hot mix asphalt. In an effort to reduce cost, we have located the majority of our hot mix asphalt plants in our aggregate quarries. This is the most efficient production method because costs associated with transporting the raw materials are minimized. However, we do operate facilities that are not at quarries. These facilities are situated to meet market demand due to the constraint that the hot mix asphalt material can only be in a truck for one hour before it cools too much to compact correctly on the job site.

 

The preparation and placement of the hot mix asphalt is also a major cost. Most of our hot mix asphalt operations operate paving crews. The management of these crews is regionalized and is typically located near a plant. We operate seven blacktop paving divisions throughout Pennsylvania, Maryland and West Virginia. In addition to paving crews, each hot mix asphalt operation also operates a number of grading/preparation crews. Depending on project size, we will hire subcontractors or, in certain cases, will utilize our heavy/highway construction division to prepare a site for paving.

 

We also generate revenue by selling material freight on board plant or quarry. On many Pennsylvania highway projects, we will quote hot mix asphalt freight on board, or in place to the competition, as well as bid a project directly as the prime contractor.

 

*Hot Mix Asphalt Sales and Marketing*

 

Hot mix asphalt customers include our own heavy/highway construction, other heavy/highway contractors and state and federal agencies, building contractors and homeowners. One of our largest hot mix asphalt customers is PennDOT. Each individual hot mix asphalt operation estimates, markets and performs its own work. The sales and marketing process is divided into two categories: PennDOT and other government projects and private projects. Our hot mix asphalt operations will bid on state, township, county or other governmental entities’ projects under the “sealed” bid system. Each project is estimated and quoted to the requesting municipality. This is most often the case for hot mix asphalt put in place, however, some municipalities and department of transportation maintenance districts have their own paving crews and in those instances, the project is bid freight on board plant or delivered to PennDOT crews.

 

Sales to private entities are typically submitted to the owner as a quoted price. Key factors for obtaining sales from private entities are the relationship with the owner or contractor and price. Our sales and estimating staff are responsible for maintaining and enhancing customer relationships and prospecting new customers and projects.

 

Our New York hot mix asphalt business is based predominantly on its relationships with paving contractors and pricing projects competitively. It also provides material quotes directly to those government agencies that have their own paving crews.

 

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There are approximately 4,000 asphalt plants in the United States, and in each year these plants collectively product approximately 500 to 550 million tons of asphalt pavement material.

 

***Our Ready Mixed Concrete Operations***

 

*Ready Mixed Concrete Products*

 

We are one of the leading suppliers of ready mixed concrete in Pennsylvania and western New York according to the most recent industry surveys. We produce ready mixed concrete by blending aggregates, cement, chemical admixtures in various ratios and water at our concrete production plants and placing the resulting product in ready mixed concrete trucks where it is then delivered to our customers. Our construction aggregates region serves as the primary source of the raw materials for our concrete production, functioning essentially as a supplier to our ready mixed concrete operations. Aggregates are a major component in ready mixed concrete, comprising approximately 60%-75% of ready mixed concrete by volume. Our wide variety of mixes, which are certified for use by PennDOT, the New York Department of Transportation and other state and federal agencies, are used in activities ranging from building construction to highway paving.

 

We operate 19 fixed and portable ready mixed concrete plants for highway paving and bridge construction.

 

Each plant’s capacity is determined, to a large degree, by the local plants production capacity and the number of ready mixed concrete trucks dispatched out of each location. However, trucks can be re-routed to accommodate demand fluctuations at a given plant. Currently, we operate a fleet of approximately 178 ready mixed concrete trucks.

 

*Ready Mixed Concrete Markets*

 

Due to the finite time before concrete hardens, our market area is limited to an approximate one-hour hauling radius around a plant. Portable ready mixed concrete plants allow for an extended marketing area, but are only cost effective for larger projects in excess of 5,000 cubic yards. Our ready mixed concrete customers are generally located within Pennsylvania, northern Maryland and western New York. One of our largest ready mixed concrete customers is our precast concrete products division, which employs ready mixed concrete for the production of structural precast concrete structures such as bridge beams, double tee beams, modular prison cells and stadium risers.

 

*Ready Mixed Concrete Sales and Marketing*

 

Each of our ready mixed concrete operations is responsible for the sale and marketing of its ready mixed concrete products.    The method that each operation employs to sell ready mixed concrete is similar and varies by customer type. Standard price lists are developed for each construction season. This list is used to establish a list price and is typically discounted for contractors or special customers. The majority of direct bids are either accepted or negotiated with the end result being a purchase order at a fixed price for a specified amount during a given period of time. Larger projects with multi-year construction phases have price increases built into the bids.

 

***Our Concrete Products Operations***

 

*Our Precast/Prestressed Products Operations*

 

We produce precast/prestressed concrete components for highway bridges and various commercial structures, including I-beams, box beams, double tee beams, stadium risers, prison cells and wall panels. Each of these products is manufactured pursuant to unique specifications for each particular job. Prestressed concrete units can then be used in the construction of bridges, modular correctional facilities, parking structures and sports facilities. Our ready mixed concrete operations supply the high strength mixes used in the precast/prestressed beams, stadium risers, prison cells and wall panels we produce. Our sales staff work with our engineers and production staff to maximize value and reduce overall construction time. Our precast/prestressed manufacturing and sales facility is located in Roaring Spring, Pennsylvania with an additional sales office in Center Valley, Pennsylvania. Our manufacturing facility produces prestressed concrete bridge beams and a number of commercial structural building components.

 

*Precast/Prestressed Concrete Products Markets*

 

The two primary factors that influence market size for bridge and commercial products are the distance from our facilities to the project and the proximity of the competition to the project. Our non-residential market area encompasses Pennsylvania, northern Maryland, western New York and New Jersey. Our bridge beam market encompasses Pennsylvania, New York and Maryland. The hauling cost of these products can be quite expensive, in some cases requiring 13 axle tractor-trailers.

 

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*Precast/Prestressed Concrete Products Sales and Marketing*

 

The sale of bridge beams to contractors is typically based on price and delivery schedule. Most beams are sold to a bridge contractor and integrated into their bridge construction quote. Generally, if we are the low bidder at the time of bid and are able to accommodate the contractor’s schedule, the sale will be made.

 

In an effort to influence project designs to be compatible with our manufacturing standards and specifications, commercial products are marketed directly to architects and engineers. Once a private project has been designed and bid, the purchase decision/negotiations can extend for months until an owner or general contractor makes a decision and awards the contract. For publicly owned projects, the low bidder is typically awarded the project.

 

*Precast/Prestressed Concrete Products and Purchasers*

 

Bridge products include prestressed concrete I-beams, box beams and precast box culverts. The largest purchasers of bridge beams are state departments of transportation, which we refer to as DOTs, through a general contractor or erector. The second largest purchasers are port authorities for airport runways, shipping ports and bridges. Commercial products include parking garages, prison cells and sports stadium risers. Parking garage owners vary from private developers to parking authorities to governmental agencies. Stadiums and prisons are typically owned by a state, county, city or the federal government. We generally sell these products, erected, to a general contractor, but will also contract directly with the owner.

 

*Our Masonry Block Operations*

 

We operate our masonry block operation from three facilities located in Pennsylvania. We sell directly to customers within an approximately 60-mile radius of each production facility and indirectly through broker/dealers within an approximately 100-mile radius.

 

*Masonry Block Markets*

 

The market for a block plant is dependent upon transportation costs and product mix. The product mix for masonry block has changed considerably over the past 20 years, expanding from a predominantly gray block offering to a range of architectural blocks for buildings and landscaping blocks for retaining walls. Architectural blocks are generally colored with a textured outer surface. Many blocks are also produced with a waterproofing feature or an interlocking feature to allow retaining wall construction. New products offer expanded market potential until competition develops a similar product. Although we can produce masonry products in any color, we have a number of standard colors, allowing us to deliver quickly, minimize inventory and reduce wasted customized blocks. This has reduced product lead time and contractor costs, since the contractor can now return any unused blocks.

 

*Masonry Block Sales and Marketing*

 

We market directly to architects and designers in an attempt to influence plans to incorporate our product offerings. This marketing strategy provides us with a competitive edge in the sales process because the customer has less flexibility to choose alternative products once our products have been incorporated into the design. In an effort to add greater value to the block package, our Construction Supply Centers will quote a package to the contractors for most of their building supply needs on a project.

 

**Our Heavy/Highway Construction Operations**

 

*Heavy/Highway Construction*

 

Our heavy/highway operations are separated into two basic categories: (i) large heavy/highway projects, which are typically complex roadway and bridge rehabilitation or new construction projects that incorporate all or most of our construction operation disciplines, including grading, drainage, paving, structure work and civil engineering and project management, and (ii) private and non-residential blacktop paving projects or small- and mid-size maintenance projects, which are typically less complex roadway and bridge rehabilitation projects and involve minor bridgework, roadway patching and blacktop paving. In addition, we also provide gas and fiber optic line installation and repair services. These combined operations made us one of the top 50 largest highway contractors in the United States, according to a survey of contractors and design firms published by the*Engineering News Record* in May 2012.

 

Heavy/highway projects are managed by our contract division located at our New Enterprise, Pennsylvania headquarters. This division manages projects across the state ranging in size up to $90.0 million.  This division typically manages 15 to 25 projects at any given time. Our seasoned contract division management team is comprised of project managers, estimators, production supervisors and field superintendents and foremen. These projects may or may not be located near our construction material locations. The construction teams operate competitively both with our construction materials as well as with materials purchased from third parties when the projects are not within the economic reach of our construction materials production facilities.

 

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Our blacktop paving and maintenance projects are located within the economic shipping radius of our hot mix asphalt plants and quarries as they are generally very highly construction materials-dependent projects. These projects include driveways, parking lots, race tracks and roadways and are typically one construction season in duration, although some of the larger projects may span two seasons. Our blacktop paving and maintenance projects are all bid and managed across our markets through our regional offices. These operations manage projects in their localities, ranging in size from tens of thousands of dollars to upwards of several million dollars. The largest and most construction materials-intense projects can exceed $10.0 million. Collectively, there are hundreds of projects per year ranging from driveways to large maintenance projects that we perform. The number of these projects for governmental agencies typically ranges from 50 to 100 per year. Management teams for these projects generally consist of salesmen, production supervisors, estimators and field foremen.

 

The bulk of our contracted jobs are public projects, which have replaced some of the private spending shortfall. The procedures and bid documents governing the contracts with our public sector customers typically allow the customers to terminate the project at their discretion. Cancellation of a few of our very large contracts could have a materially adverse impact on our revenues and results of operations. See “Item 1A—Risk Factors—The Cancellation Of Significant Contracts Or Our Disqualification from Bidding for New Contracts Could Reduce Revenues and Have a Material Adverse Effect On Our Results Of Operations.”

 

*Heavy/Highway Construction Markets*

 

Our largest heavy/highway construction customer is PennDOT. We also work with municipalities, state and national parks, the Army Corps of Engineers, industrial facilities, other contractors and private customers. Along with the local county and municipal governments, PennDOT controls and maintains its approximately 40,000 mile system, with the remaining approximately 80,000 miles maintained by local county and municipal governments. Our extensive network of quarries, hot mix asphalt plants, paving crews and traffic safety services and equipment sales, in combination with our unlimited prequalification bid capacity for PennDOT projects, ensures a broad marketing area. Our core heavy construction market extends throughout Pennsylvania. Our core blacktop paving and maintenance and highway construction market is located within an approximately 50 mile radius from each hot mix asphalt plant, which covers a large portion of Pennsylvania.

 

For our heavy construction market we operate with a non-union workforce that will travel to each project. This enables construction project staffing with a predictable stable workforce. It also allows predictable production rates when market forces require us to look for work beyond our core market. The hot mix asphalt and maintenance markets also operate with non-union workforces throughout our market area, as well as a small union operation in the heavily unionized Delaware Valley market. These projects are generally local crews, so overnight stays are unnecessary.

 

We act as the prime contractor on the majority of our projects, with 15% to 20% of a project performed by subcontractors. We will subcontract larger pieces of a project if necessary to manage labor and equipment costs. Subcontractors typically perform specialized services such as line stripping, guide rail installation, clearing, signing, lighting and providing traffic protection services.

 

For our blacktop paving and maintenance operations we will serve either as the prime contractor when we are the low bidder or as a subcontractor for another general contractor when we are either not the low bidder or we chose not to bid on the project.

 

*Heavy/Highway Construction Sales and Marketing*

 

All public work is awarded in a “sealed bid.” Estimators and engineers review the work to be performed and estimate the cost to complete the project. On heavy/highway construction projects, teams of three to six people under the direction of a chief estimator, develop the estimate. The majority of our estimators are also project managers, which allows for greater accuracy in estimating crew sizes and production capabilities. Typically, each project has approximately four to eight bidders.

 

With respect to blacktop paving and maintenance work, the sales effort varies significantly depending on the project scope. All projects are staffed with an estimating or sales person or team, depending on the size, and generally reviewed by a manager. For private and subcontracted public work, salesmen will negotiate both the project scope and price. For low bid public work, the estimating team will submit a sealed bid.

 

*Heavy/Highway Construction Competition*

 

The competition for our heavy/highway work is complex. On the heavy side, competition varies by the work discipline on the project, the amount of each discipline on the project and the location. Our competition for blacktop paving and maintenance work is much more localized, since these projects are typically material-intensive and the competition is generally vertically integrated construction materials suppliers and local contractors that specialize in roadway rehabilitation, site development or paving.

 

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**Our Traffic Safety Services and Equipment Operations**

 

*Traffic Safety Services and Equipment*

 

Our traffic safety services and equipment business consists primarily of traffic cones, barricades, plastic drums, arrow boards, construction signs and crash attenuators, which are sold and rented throughout the United States through our safety products operations.

 

We manufacture, sell and install a complete line of traffic control devices, including traffic cones, plastic drums, channelizers, barricades, arrow boards, crash attenuators, construction/permanent signs and posts, message boards, speed awareness monitors and strobe/warning lights. Traffic cones are produced using a polyvinyl chloride material that enhances the cone’s durability and coloring. The cones are differentiated by size, wall thickness and weight in order to meet customer specifications and state safety requirements. Our plastic drums and drum bases are used in a variety of roadwork settings. The drum’s design features a snap-locking mechanism that connects the drum and the base to assure a sturdy connection. The drums are made from flexible low-density polyethylene plastic and can be used with plastic or rubber bases. We offer a wide range of drum sizes that are used in highway or residential road construction. We also offer a complete line of traffic channelizers for the work zone environment, including barricades, channelizers and vertical panels. Our crash attenuators are designed to enhance driver safety and to reduce maintenance and repair costs. We manufacture a complete line of traffic control signs for use in long and short term construction patterns, as well as for temporary roadway use.

 

We manufacture solar powered traffic safety devices. Our products include a full line of arrow boards, message centers and speed awareness monitors. These are powered by batteries that are recharged through the use of solar panels, making the units environmentally friendly, convenient to locate and cost efficient to operate.

 

We also provide intelligent transportation systems equipment and a proprietary Computerized Highway Information Processing System, which we refer to as CHIPS, to DOTs, universities and paving and construction companies. Our products include queue detectors, over-height vehicle detectors, flooded roadway detectors, trailer mounted cameras and variable speed limits systems. The information collected from sensors along the highways is stored and processed through the CHIPS traffic management software program.

 

Our manufacturing and assembly facilities located in Harrisburg, PA, Lake City, FL, St. Charles, IL, New Castle, DE and Garland, TX produce traffic cones, barricades, temporary and permanent signs, message boards, monitors, lighting, CHIPS and solar assisted devices. We use a variety of materials suppliers in various geographic areas and we are not dependent on any one or small group of suppliers.

 

We purchase products from third party manufacturers such as plastic drums, channelizers, sign posts and stands, attenuators, reflective materials and other resale items and resell them to a network of independent distributors. A third party manufactures the barrels and channelizers and the reflective striping is applied at our facilities. The channelizers are produced by a third party vendor on a verbal contract or on a purchase order basis. The attenuators are manufactured by third parties in Salt Lake City, Utah, Somerset, Pennsylvania and Texas. We are not dependent on any one supplier for our purchased products with competitive options for sources of products. 3M Company and Morgan Valley Mftg Inc. accounted for 14% and 5% of our fiscal year 2013 external purchases respectively. No other single supplier accounted for more than 5% of total external purchases for our products.

 

For more discussion on the Company’s manufacturing facilities see the section of this Annual Report on Form 10-K/A titled “Item 2-Properties”

 

*Traffic Safety Services and Equipment Markets and Sales and Marketing*

 

Our traffic safety equipment is sold nationwide through a network of distributors as well as through our own sales force. Distributors include highway traffic control companies, “Do-It-Yourself” home centers, safety supply, industrial supply, telecommunication supply, contractor equipment and supply. One of our largest customers for this business is Lowes.

 

We have a dedicated team of sales professionals for our traffic safety equipment including sales managers, territory managers, customer service representatives and products specialists. Each territory manager is responsible for marketing to end-users and DOTs in our geographic regions. Customer service representatives are responsible for providing customers with product information, entering orders and developing relationships with distributors. The sales force is managed from our St. Charles, Illinois office.

 

In addition to product sales, we provide maintenance and traffic protection services primarily in the eastern United States, to highway contractors, DOTs and municipal government agencies. Under traffic pattern management contracts, we provide all aspects of management and maintenance of traffic control patterns for work sites. We maintain an inventory of products used for our rental business and traffic pattern management contracts. The contracts are bid based on a “Daily Rental Rate” or a “Lump Sum Price.” Sales are primarily the result of competitive bidding.

 

As of February 28, 2013, we had 37 branch offices and sub-offices in the eastern United States. Each location varies slightly in the services they provide so as to best compete in the local market. Generally all regions sell products and install traffic patterns or rent equipment to contractors so they can set their own traffic patterns. Branch offices are overseen by three regional managers who report to our Harrisburg, Pennsylvania office.

 

For traffic safety services, we compete with many local maintenance and traffic protection contractors, many of which are small businesses or minority-owned firms that get bidding preference through various government programs.

 

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**Other Operations**

 

We operate several additional non-core businesses, including port operations, clay fillers and retail construction supply sales.

 

***Gateway Trade Center***

 

We operate the Port of Buffalo under the trade name Gateway Trade Center. The port is comprised of an approximately 3,900-foot long shipping canal with a depth of approximately 27 feet and approximately 71 acres of storage. The primary product through the port is de-icing salt, which is unloaded in the summer and fall and stored at the port until it is used throughout the winter. Other materials that are unloaded and transported to their final destination include: limestone, coal, coke, steel and specialty products.

 

***Construction Supply Centers***

 

We operate a chain of construction supply centers in Pennsylvania, which sell retail construction supplies to contractors and homeowners. The four primary product lines sold are masonry, grading and drainage, small tools and rentals and highway contractor supplies.

 

**Bonding**

 

We generally are required to provide various types of surety bonds that provide an additional measure of security for our performance under certain public and private sector contracts as well as for various regulatory requirements. We obtain bonding for highway work, any bonding required for precast and prestressed product projects and certain blacktop paving projects, workers compensation in the Commonwealth of Pennsylvania, reclamation bonds for quarries and other miscellaneous bonds. Our ability to obtain surety bonds depends upon our working capital, financial performance, past performance on projects, management expertise and external factors, including the capacity of the overall surety market. Surety companies consider such factors in light of the amount of our contract backlog that we have currently bonded and their current underwriting standards, which may change from time to time. We use multiple surety providers to provide our surety bonding program. Additionally, in order to better manage the fluctuations in the surety market, we may utilize a co-surety structure on certain projects.  Although we do not believe that fluctuations in surety market capacity have significantly affected our ability to manage our business, there is no assurance that it will not significantly affect our ability to obtain new contracts in the future.  See “Item 1A. Risk Factors.”

 

**Construction Backlog**

 

Backlog is our estimate of the revenue that we expect to earn in future periods on projects performed by our heavy construction civil business.  We generally include a project in our contract backlog at the time a contract is awarded.  At February 28, 2013, our backlog was $155.7 million, as compared to $133.4 million at February 29, 2012. Approximately, $101.2 million of the February 28, 2013 backlog is expected to be completed during fiscal year 2014.

 

Substantially all of the contracts in our backlog may be canceled or modified at the election of the customer; however, we have not been materially adversely affected by contract cancellations or modifications in the past. Backlog measures all remaining work; and as such, a rise or fall in backlog is not a true measure of work to be performed in a fiscal year as some projects will span multiple fiscal years while other projects will be added and completed within the same fiscal year.

 

**Seasonality**

 

Almost all of our products are produced and consumed outdoors. Our financial results for any quarter do not necessarily indicate the results expected for the year because seasonal changes and other weather-related conditions can affect the production and sales volumes of our products. Normally, the highest sales and earnings are in the second and third quarters and the lowest are in the first and fourth quarters.

 

**Employment**

 

At February 28, 2013, we had approximately 3,114 employees of which approximately 18% are full time salary employees and approximately 82% are hourly. Since most of our work is seasonal, many of our hourly and certain of our full time employees are subject to seasonal layoffs. Since layoffs are determined by the type of work and weather in the late fall through early spring, they vary greatly.

 

At February 28, 2013, approximately 31% of our total hourly employees were union members. We have no unionized full time salary employees. We believe that we enjoy an excellent working relationship with all of our employees and unions. The following is a list of all our unions and their contract status as of February 28, 2013:

 

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| **Union**                                                                                                                                                                                            | ** ** | **Contract Status**                                                                                                                                                                                   | ** ** | **Number of********Employees** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|
| **New Enterprise Stone & Lime Co., Inc.**                                                                                                                                              |       |                                                                                                                                                                                                       |       |                                |
| ** **                                                                                                                                                                                           |       |                                                                                                                                                                                                       |       |                                |
| The   International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers   of America Local 110 and 453. Select quarries, hot mix asphalt   and ready mixed concrete plants |       | Expires   April 30, 2014.                                                                                                                                                                             |       | 323                                 |
|                                                                                                                                                                                                 |       |                                                                                                                                                                                                       |       |                                |
| United   Steelworkers Union—Local 00504, Roaring Spring Newcrete plant                                                                                                                          |       | Expires   March 15, 2014.                                                                                                                                                                             |       | 72                                  |
|                                                                                                                                                                                                 |       |                                                                                                                                                                                                       |       |                                |
| Truck   Drivers Local Union No. 449, affiliated with the International   Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of   America                                       |       | Expires   June 30, 2014.                                                                                                                                                                              |       | 3                                   |
|                                                                                                                                                                                                 |       |                                                                                                                                                                                                       |       |                                |
| International   Union of Operating Engineers—Local 17                                                                                                                                      |       | Como   Park contract expires March 31, 2015, Franklinville contract expires   March 31, 2016, Gateway contract expires June 30, 2014 and ABC   Paving contract expires March 31, 2014. |       | 41                                  |
|                                                                                                                                                                                                 |       |                                                                                                                                                                                                       |       |                                |
| Cement,   Lime, Gypsum and Allied Workers Division of International Brotherhood of   Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and Helpers                                         |       | Wehrle   Drive and Barton Road contract expires May 31, 2015.                                                                                                                                         |       | 40                                  |
|                                                                                                                                                                                                 |       |                                                                                                                                                                                                       |       |                                |
| Cement,   Lime, Gypsum and Allied Workers Division of International Brotherhood of   Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and Helpers                                         |       | Olean   and Como blacktop and quarry contract expires May 15, 2015.                                                                                                                                   |       | 24                                  |
|                                                                                                                                                                                                 |       |                                                                                                                                                                                                       |       |                                |
| International   Brotherhood of Electrical Workers and Northeastern Line   Constructors Chapter, NECA                                                                                       |       | Expires   December 31, 2014.                                                                                                                                                                          |       | 24                                  |
|                                                                                                                                                                                                 |       |                                                                                                                                                                                                       |       |                                |
| Laborers   International Union of North America Upstate New York Laborers District   Council No. 210                                                                                       |       | Expires   June 30, 2013.                                                                                                                                                                              |       | 9                                   |
|                                                                                                                                                                                                 |       |                                                                                                                                                                                                       |       |                                |
| Kutztown &   Oley Quarries, United Steelworkers                                                                                                                                             |       | Expires   May 31, 2015.                                                                                                                                                                               |       | 13                                  |
|                                                                                                                                                                                                 |       |                                                                                                                                                                                                       |       |                                |
| Oley   Quarries, United Steelworkers                                                                                                                                                                 |       | Expires   May 31, 2015.                                                                                                                                                                               |       | 11                                  |
|                                                                                                                                                                                                 |       |                                                                                                                                                                                                       |       |                                |
| Little   Gap, Whitehall, Ormrod and Nazareth Quarries, Teamster                                                                                                                                      |       | Expires   December 31, 2014.                                                                                                                                                                          |       | 21                                  |
|                                                                                                                                                                                                 |       |                                                                                                                                                                                                       |       |                                |
| Kutztown,   Wescosville, Ormrod and Bethlehem Blacktop, Teamster                                                                                                                                |       | Expires   January 31, 2016.                                                                                                                                                                           |       | 6                                   |

 

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| Wescosville   Block, Building and Forms, Teamster                                                                             |   | Expires   December 31, 2014. |   | 19     |
|-------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|--------|
|                                                                                                                          |   |                              |   |   |
| Service   Division and Eastern Trucking, Teamster                                                                             |   | Expires   May 31, 2014.      |   | 20     |
|                                                                                                                          |   |                              |   |   |
| Elco-Hausman   Construction, International Union of Operating Engineers Local   Union 542                           |   | Expires   April 30, 2014.    |   | 13     |
|                                                                                                                          |   |                              |   |   |
| Elco-Hausman   Construction, Teamsters Local 773                                                                              |   | Expires   May 31, 2014.      |   | 4      |
|                                                                                                                          |   |                              |   |   |
| Elco-Hausman   Construction, Laborers Local 158                                                                               |   | Expires   April 30, 2016.    |   | 7      |
|                                                                                                                          |   |                              |   |   |
| Clifford,   Towanda, Sheshequin and Towanda (concrete, Block and Delivery), Unaffiliated   Company Collective Bargaining Unit |   | Expires   December 31, 2015. |   | 58     |
|                                                                                                                          |   |                              |   |   |
| Harrisburg   Plant, Unaffiliated Company Collective Bargaining Unit                                                           |   | Expires   November 3, 2013.  |   | 11     |
|                                                                                                                          |   |                              |   |   |
| Lake   City Plant, Unaffiliated Company Collective Bargaining Unit                                                       |   | Expires   November 3, 2013.  |   | 13     |
|                                                                                                                          |   |                              |   |   |
| Oreland,   Unaffiliated Company Collective Bargaining Unit                                                                    |   | Expires   November 2, 2013.  |   | 16     |
|                                                                                                                          |   |                              |   |   |
| Pittsburgh,   Unaffiliated Company Collective Bargaining Unit                                                                 |   | Expires   November 2, 2013.  |   | 7      |
|                                                                                                                          |   |                              |   |   |
| Teamsters   Local 110 (Cleveland)                                                                                             |   | No   stated expiration date.      |   | 2      |
|                                                                                                                          |   |                              |   |   |
| Teamsters   Local 110 (Columbus)                                                                                              |   | Expires   December 31, 2013. |   | 3      |

 

**Intellectual Property**

 

We own trademarks and trade names related to our construction materials, concrete and construction businesses. We also own pending patent applications, issued patents, trademarks and trade names related to our construction materials business and our traffic safety services business, with specific patents relating to our attenuators and our CHIPS program. We believe that these patent applications, issued patents, trademarks and trade names are material to our traffic safety services and equipment business.

 

**Environmental and Government Regulation**

 

Our operations are subject to federal, state and local laws and regulations relating to the environment and to health and safety, including noise, discharges to air and water, waste management, remediation of contaminated sites, mine reclamation, dust control, zoning and permitting. While we believe our operations are in substantial compliance with applicable requirements, there can be no assurance that compliance costs will not be significant.

 

We regularly monitor and review our operations, procedures, and policies for compliance with existing environmental laws and regulations, changes in interpretations of existing laws and enforcement policies, new laws that are adopted, and new requirements that we anticipate will be adopted that could affect our operations.

 

We are frequently required by state and local regulations or contractual obligations to reclaim our former mining sites. These

 

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reclamation liabilities are recorded in our financial statements as a liability at the time the obligation arises. The fair value of such obligations is capitalized and depreciated over the estimated useful life of the owned or leased site. The liability is accreted through charges to operating expenses. To determine the fair value, we estimate the cost for a third party to perform the legally required reclamation, adjusted for inflation and risk and including a reasonable profit margin. All reclamation obligations are reviewed at least annually. Reclaimed quarries often have potential for use in non-residential or residential development or as reservoirs or landfills. However, no projected cash flows from these anticipated uses have been considered to offset or reduce the estimated reclamation liability. As of February 28, 2013, we have accrued approximately $13.7 million to cover our mine reclamation obligations.

 

**Worker Health and Safety**

 

Our operations are subject to a variety of worker health and safety requirements, particularly those administered by the federal Mine Safety and Health Administration and the Occupational Safety and Health Administration, which are likely to become stricter in the future. Failure to comply with these requirements can result in fines and penalties and claims for personal injury and property damage. These requirements may also result in increased operating and capital costs in the future. We believe we are in substantial compliance with such requirements but cannot guarantee that violations will not occur which could result in significant costs. We conduct approximately 20,000 hours of annual Mine Safety and Health Administration and Occupational Safety and Health Administration training sessions, as well as weekly tool box talks. Finally, we have safety professionals on staff, as well as a corporate risk manager.

 

**Insurance**

 

We use a combination of third-party insurance and self-insurance to provide for potential liabilities for workers’ compensation, general liability, vehicle accident, property and medical benefit claims. We utilize an actuary to assist us with estimating the liabilities associated with the risks retained by us, in part, by considering historical claims experience, demographic and severity factors and other actuarial assumptions which, by their nature, are subject to a high degree of variability. Any projection of losses concerning workers’ compensation and general liability is subject to a high degree of variability. Among the causes of this variability are unpredictable external factors affecting future inflation rates, discount rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns.

 

Although we have minimized our exposure on individual claims, for the benefit of costs savings we have accepted the risk of a large amount of independent multiple material claims arising, which could have a significant impact on our earnings. Our Pennsylvania workers compensation claims are self insured for up to $1.0 million per occurrence. We maintain a wholly-owned captive insurance company, Rock Solid Insurance Company, which we refer to as RSIC, for workers’ compensation (non-Pennsylvania employees), general liability and property coverage. Our general automobile and liability and other states workers compensation coverages are currently fully insured in the primary layer, the first $5.0 million, through a deductible reimbursement program with one of our insurance carriers and our subsidiary, RSIC.  We are liable for up to $0.3 million per year per member for health care claims and RSIC is responsible for amounts in excess of our $0.3 million deductible up to $1.0 million for each health care claim, with coverage from insurance carriers after the $1.0 million retention. This layer is additionally insured for a maximum annual aggregated loss for $10.0 million and has clash protection for $2.5 million. We are responsible for the first $0.3 million for each property and casualty claim and RSIC is responsible for amounts in excess of our $0.3 million deductible up to the first $2.0 million of every property and casualty claim.  Our property and casualty insurance coverage then carries a $15.0 million limit per occurrence. Our pollution liability coverage is a three year program with an aggregate $15.0 million limit and a $1.0 million deductible. RSIC is subject to the insurance rules and regulations of the state of South Carolina. The premiums paid annually to RSIC from the Company are determined by a third party actuary.

 

In addition to the $5.0 million primary insurance coverage, we have an additional $95.0 million of insurance coverage, which is insured by several non-affiliated insurance companies.

 

**Item 1A****.****                          ****RISK FACTORS.**

 

**Risks Related to Our Business and Industry**

 

***Our business depends on activity within the construction industry.***

 

We sell most of our construction materials and traffic safety equipment, and provide all of our heavy/highway construction services, to the construction industry, so our results depend on the strength of the construction industry. Demand for our products, particularly in the non-residential and residential construction markets, could remain weak and continue to fall if companies and consumers continue to struggle to obtain credit for construction projects or if the slow pace of economic activity continues to delay or cancel capital projects. State and federal budget issues continue to hurt the funding available for infrastructure spending, particularly heavy/highway construction and traffic safety, which constitute a significant portion of our business. Many states, including

 

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Pennsylvania, have reduced their construction spending because of budget shortfalls caused by lower tax revenues and uncertainty relating to long-term federal highway funding. There has been a reduction in many states’ investment in highway maintenance. These factors resulted in a continued reduction in our sales during fiscal years 2012 and 2013 which, combined with a decline in pricing in many of our business units, continues to hurt our business. Our earnings depend on the strength of the local economies in which we operate because of the high cost to transport our products relative to their price. If economic conditions and construction remain low in our top revenue-generating markets of Pennsylvania and western New York, our business and results of operations continue to be materially adversely affected and there is no assurance that this will not continue to affect our business in the future.

 

***Our business is cyclical and requires significant working capital to fund operations.***

 

The cyclicality of our business requires that we maintain significant working capital to fund our operations. Our ability to generate sufficient cash flow depends on future performance, which will be subject to general economic conditions, industry cycles and financial, business, and other factors affecting our operations, many of which are beyond our control. If we are unable to generate sufficient cash to operate our business and service our outstanding debt and other obligations, we may be required, among other things, to further reduce or delay planned capital or operating expenditures, sell assets or take other measures, including the restructuring of all or a portion of our debt, which may only be available, if at all, on unsatisfactory terms.

 

***Our lender has the right to add or modify certain terms of our revolving credit facility that would negatively impact our financial position, cash flows and results of operations***

 

We have an asset-based secured revolving credit facility, which we refer to as our ABL Facility, with Manufacturers and Traders Trust Company, which we refer to as M&T.  The ABL Facility provides for maximum borrowings on a revolving basis of up to $145.0 million.  As a result of amendments to the terms of the ABL Facility, the maximum availability is subject to restriction if our Fixed Charge Coverage Ratio is less than 1.0 to 1.0, which it was as of February 28, 2013. In addition, our borrowing availability would be further restricted after November 30, 2014 if our Fixed Charge Coverage Ratio is less than 1.0 to 1.0. In such case, the limited availability could impact our ability to borrow for working capital purposes which could, in turn, negatively impact our financial position, cash flows and results of operations. In addition, since M&T was unable to reduce its final participation in the ABL Facility to no more than $75.0 million by December 15, 2012, M&T may add or modify terms of the ABL Facility that were previously prohibited from being added or modified, including but not limited to the advance rates, certain covenants and the interest and fees payable.  As of the date of this Annual Report on Form 10-K/A, the terms of the ABL Facility have not been modified as a result of M&T’s inability to syndicate the ABL Facility.  However, should M&T choose to exercise its right to add or modify terms of the ABL Facility, borrowings under the ABL Facility may be subject to terms less favorable than the current terms of the ABL Facility which could negatively impact our financial position, cash flows and results of operations. Furthermore, such modifications may require us to renegotiate the terms of our ABL Facility or obtain additional financing.  We may not be able to obtain such modifications or additional financing on commercially reasonable terms or at all.   If we are unable to obtain such modifications or additional financing, we would have to consider other options, such as the sale of certain assets, sales of equity, and negotiations with our lenders to restructure our debt.  The terms of our indebtedness may restrict, or market or business conditions may limit, our ability to do any or all of these things.

 

***A decline in public sector construction and reductions in governmental funding could adversely affect our operations and results.***

 

A significant portion of our revenue is generated from publicly funded construction projects. If, because of reduced federal or state funding or otherwise, spending on publicly funded construction continues to remain low, our earnings and cash flows will remain negatively affected.  In 2012, the U.S. Congress passed a two year funding bill, Moving Ahead for Progress, or MAP-21, which provides relatively flat infrastructure funding for Pennsylvania as compared to the previous federal allocation. The lack of a long term bill increases the uncertainty of many state departments regarding funding for highway projects. This uncertainty could result in federal, state or local governing bodies being reluctant to undertake large projects which could, in turn, negatively affect our revenues.

 

As a result of the foregoing, we cannot be assured of the existence, amount and timing of appropriations for spending on federal, state or local projects. The federal support for the cost of highway maintenance and construction is dependent on congressional action. In addition, each state funds its infrastructure spending from specially allocated amounts collected from various taxes, typically gasoline taxes and vehicle fees, along with voter-approved bond programs. Shortages in state tax revenues can reduce the amounts spent on state infrastructure projects, even below amounts awarded under legislative bills. Nearly all states are now experiencing state-level funding pressures caused by lower tax revenues and an inability to finance approved projects. Delays or cancellations of state infrastructure spending have in the past hurt, and we anticipate in the immediate future will continue to hurt, our business because a significant portion of our business is dependent on state infrastructure spending.

 

***A decline in the funding of PennDOT, the Pennsylvania Turnpike Commission, the New York State Thruway or other state agencies could adversely affect our operations and results****.*

 

A significant portion of our revenues, both through direct and indirect sales, are generated from PennDOT, the Pennsylvania Turnpike Commission, the New York State Thruway and other Pennsylvania state agencies. The spending of these agencies is governed

 

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by an annual budget which is approved by the relevant state. Our revenues have in the past been adversely affected and will continue to be adversely affected by any decreases by these entities in their annual budgets.

 

***Our business relies on private investment in infrastructure and a slower than normal recovery will adversely affect our results.***

 

A portion of our sales are for projects with non-public owners. Construction spending is affected by developers’ ability to finance projects. The current credit environment has negatively affected the United States economy and demand for our products. Non-residential and residential construction could continue to decline if companies and consumers are unable to finance construction projects or if the economic slowdown continues to cause delays or cancellations of capital projects.  If housing starts and non-residential projects do not begin to rise steadily with the slow economic recovery as they normally do when recessions end, our construction materials and contracting services sales may fall further and our business and results of operations may continue to be materially adversely affected.

 

***Difficult and volatile economic conditions continue to affect our financial position, results of operations and cash flows.***

 

Demand for our products is primarily dependent on the overall health of the economy, and federal, state and local public funding levels. The stagnant, and at times declining, economy continues to put pressure on the demand for our construction materials and increases competition and aggressive pricing for private and public sector projects as companies migrate from bidding on scarce private sector work to projects in the public sector. In addition, a stagnant or declining economy tends to produce less tax revenue for public agencies, thereby decreasing a source of funds available for spending on public infrastructure improvements, which constitute a substantial part of our business.  We expect that the challenges to our business environment will persist throughout the next twelve months, and will continue to affect for some time our heavy/highway construction and traffic safety services and equipment businesses, which constitute a significant portion of our overall business. We expect that these conditions will continue to negatively impact our financial position, results of operations, cash flows and liquidity at least throughout the next twelve months.

 

With the slow pace of economic recovery, there is also a likelihood that we will not be able to collect on certain of our accounts receivable from our customers, many of which are still struggling. Although we are protected in part by payment bonds posted by some of our customers, we have in the past and continue to experience payment delays from some of our customers during this economic downturn.

 

These adverse economic factors have in the past, and in the immediate future could continue to, materially adversely affect our financial condition, results of operations, cash flows and liquidity. These factors have also in the past resulted in our inability to meet our covenants under our debt facilities and necessitated our seeking numerous amendments and waivers. As a result of several refinancing transactions which occurred on March 15, 2012, we have recapitalized our debt structure. While our 13% senior secured notes due 2018 and our 11% senior notes due 2018, which we refer to collectively as our notes, do not contain financial maintenance covenants, depending on the amount borrowed under our asset-based revolving loan facility, which we refer to as ABL Facility, we may have to maintain certain financial maintenance covenants in order to be able to borrow the full amount available under that facility. Our ability to make payments on, or repay or refinance, our debt and to fund planned capital expenditures will depend largely upon the availability of financing and our future operating performance.

 

We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our ABL Facility or from other sources in an amount sufficient to pay our debt or to fund our other liquidity needs. If we are unable to generate sufficient cash flow to meet our debt service requirements, we may have to renegotiate the terms of our indebtedness and obtain additional financing. We cannot assure you that we will be able to refinance any of our debt or obtain additional financing on commercially reasonable terms or at all. If we were unable to meet our debt service requirements or obtain new financing under these circumstances, we would have to consider other options, such as the sales of certain assets, sales of equity, and negotiations with our lenders to restructure our debt. The terms of our indebtedness may restrict, or market or business conditions may limit, our ability to do any or all of these things.

 

***If we are unable to accurately estimate the overall risks, requirements or costs when we bid on or negotiate a contract that is ultimately awarded to us, we may achieve a lower than anticipated profit or incur a loss on the contract.***

 

Even though the majority of our governmental contracts contain certain raw material escalators to protect us from certain price increases, a portion of the contracts are on a fixed cost basis. The fixed cost basis portion of these contracts requires us to perform the contract for a fixed unit price based on approved quantities irrespective of our actual costs. Lump sum contracts require that the total amount of work be performed for a single price irrespective of our actual costs. We realize a profit on our contracts only if: (i) we successfully estimate our costs and then successfully control actual costs and avoid cost overruns and (ii) our revenues exceed actual costs. If our cost estimates for a contract are inaccurate, or if we do not execute the contract within our cost estimates, then cost overruns may cause us to incur losses or cause the contract not to be as profitable as we expected. The final results under these types of contracts could negatively affect our cash flow, earnings and financial position. The costs incurred and gross profit realized, if any, on our

 

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contracts can vary, sometimes substantially, from our original projections due to a variety of factors, including, but not limited to:

 

·            failure to include materials or work in a bid, or the failure to estimate properly the quantities or costs needed to complete a lump sum contract;

 

·            delays caused by weather conditions;

 

·            contract or project modifications creating unanticipated costs not covered by change orders;

 

·            changes in availability, proximity and costs of materials, including steel, concrete, aggregates and other construction materials (such as stone, gravel, sand and oil for asphalt paving), as well as fuel and lubricants for our equipment;

 

·            to the extent not covered by contractual cost escalators, variability and inability to predict the costs of purchasing diesel, asphalt and cement;

 

·            availability and skill level of workers;

 

·            failure by our suppliers, subcontractors, designers, engineers or customers to perform their obligations;

 

·            fraud, theft or other improper activities by our suppliers, subcontractors, designers, engineers, customers or our own personnel;

 

·            mechanical problems with our machinery or equipment;

 

·            costs associated with 104 (a) citations issued by any governmental authority, including the Occupational Safety and Health Administration and Mine Safety and Health Administration;

 

·            difficulties in obtaining required governmental permits or approvals;

 

·            changes in applicable laws and regulations; and

 

·            uninsured claims or demands from third parties for alleged damages arising from the design, construction or use and operation of a project of which our work is part.

 

Public sector customers may seek to impose contractual risk-shifting provisions more aggressively, and we could face increased risks, which may adversely affect our cash flow, earnings and financial position.

 

***Weather can materially affect our business and we are subject to seasonality.***

 

Nearly all of the products used by us, and by our customers, in the public or private construction industry are used outdoors. In addition, our heavy/highway operations and production and distribution facilities are located outdoors. Therefore, seasonal changes and other weather-related conditions can adversely affect our business and operations through a decline in both the demand for our services and use of our products. Adverse weather conditions such as extended rainy and cold weather in the spring and fall can reduce demand for our products by contractors and reduce sales or render our contracting operations less efficient.

 

Occasionally, major weather events such as hurricanes, tropical storms and heavy snows with quick rainy melts adversely affect sales in the short term.

 

The construction materials business production and shipment levels follow activity in the construction industry, which typically occurs in the spring, summer and fall. Warmer and drier weather during the second and third quarters of our fiscal year typically result in higher activity and revenue levels during those quarters. The last quarter of our fiscal year has typically lower levels of activity due to the weather conditions. Our first quarter varies greatly with the spring rains and wide temperature variations. A cool wet spring increases drying time on projects, possibly delaying sales until the second quarter, while a warm dry spring may enable earlier project startup.

 

***Within our local markets, we operate in a highly competitive industry.***

 

The U.S. aggregate industry is highly fragmented with numerous participants operating in localized markets. However, in most markets, we also compete against large private and public companies, some of which are as vertically integrated as we are. This results in intense competition in a number of markets in which we operate. Significant competition leads to lower prices and lower sales volumes, which can negatively affect our earnings and cash flows.

 

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***Our long-term success is dependent upon securing and permitting aggregate reserves in strategically located areas.***

 

Construction aggregates are bulky and heavy and, therefore, difficult to transport efficiently. Because of the nature of the products, the freight costs can quickly surpass the production costs. Therefore, except for geographic regions that do not possess commercially viable deposits of aggregates and are served by rail, barge or ship, the markets for our products tend to be very localized around our quarry sites. New quarry sites often take a number of years to develop, so our strategic planning and new site development must stay ahead of actual growth. As is the case with the broader industry, we acquire existing quarries and, where practical, extend the permit boundaries at existing quarries and open greenfield sites to continue to grow our reserves. In a number of urban and suburban areas in which we operate, it is increasingly difficult to permit new sites or expand existing sites due to community resistance. Therefore, our future success is dependent, in part, on our ability to accurately forecast future areas of high growth in order to locate optimal facility sites and on our ability to either acquire existing quarries or secure operating and environmental permits to open new quarries. If we are unable to accurately forecast areas of future growth, acquire existing quarries or secure the necessary permits to open new quarries, our business and results of operations may be materially adversely affected.

 

***Our future growth may depend in part on acquiring other businesses in our industry and successfully integrating them with our existing operations.***

 

In the past, we have made acquisitions to strengthen our existing locations, expand our operations, grow our reserves and grow our market share. We expect to continue to make selective acquisitions in contiguous locations and geographic markets or other business arrangements we believe will help our company. However, the success of our acquisition program will depend on our ability to find and buy other attractive businesses at a reasonable price, the availability of financing and our ability to successfully integrate acquired businesses into our existing operations. We cannot assure you that there will be attractive acquisition opportunities at reasonable prices, that financing will be available or that we can successfully integrate such acquired businesses into our existing operations. In addition, acquisitions may require us to take an impairment charge in our financial statements. We had to take certain impairment charges in the past due to acquisitions and cannot assure you that we will not do it again in the future in connection with new acquisitions.

 

***Our business is a capital-intensive business.***

 

The property and machinery needed to produce our products can be very expensive. Therefore, we need to spend a substantial amount of money to purchase and maintain the equipment necessary to operate our business. We believe that our current cash balance, along with our projected internal cash flows and our available financing resources, will be enough to give us the cash we need to support our currently anticipated operating and capital needs and service our outstanding debt and other obligations. If we are unable to generate sufficient cash to purchase and maintain the property and machinery necessary to operate our business, we may be required to reduce or delay planned capital expenditures, sell assets or take other measures, including restructuring all or a portion of our debt, which may only be available, if at all, on unsatisfactory terms.

 

***Our failure to meet schedule or performance requirements of our contracts could adversely affect us.***

 

In most cases, our contracts require completion by a scheduled acceptance date. Failure to meet any such schedule could result in additional costs, penalties or liquidated damages being assessed against us, and these could exceed projected profit margins on the contract. Performance problems on existing and future contracts could cause actual results of operations to differ materially from those anticipated by us and could cause us to suffer damage to our reputation within the industry and among our customers, which may have a material adverse effect on our business and results of operations.

 

***Environmental, health and safety laws and any changes to such laws may have a material adverse effect on our business, financial condition and results of operations.***

 

We are subject to a variety of environmental, health and safety laws, and the cost of complying and other liabilities associated with such laws may have a material adverse effect on our business, financial condition and results of operations.

 

We are subject to a variety of federal, state and local environmental laws and regulations relating to: (i) the release or discharge of materials into the environment; (ii) the management, use, processing, handling, storage, transport or disposal of hazardous materials; and (iii) the protection of public and employee health, safety and the environment. These laws and regulations expose us to liability for the environmental condition of our current or formerly owned or operated facilities, and may expose us to liability for the conduct of others or for our actions that complied with all applicable laws at the time these actions were taken. In particular, we may incur remediation costs and other related expenses because: (i) our facilities were constructed and operated before the adoption of current environmental laws and the institution of compliance practices and (ii) certain of our processes are regulated. These laws and regulations may also expose us to liability for claims of personal injury or property or natural resource damage related to alleged exposure to regulated materials.

 

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Despite our compliance efforts, there is the inherent risk of liability in the operation of our business, especially from an environmental standpoint. These potential liabilities could have an adverse impact on our operations and profitability. In many instances, we must have government approvals and certificates, permits or licenses in order to conduct our business, which often require us to make significant capital and maintenance expenditures to comply with zoning and environmental laws and regulations. Our failure to maintain required certificates, permits or licenses or to comply with applicable governmental requirements could result in substantial fines or possible revocation of our authority to conduct some of our operations. Governmental requirements that impact our operations also include those relating to air quality, waste management, water quality, mine reclamation, remediation of contaminated sites and worker health and safety. These requirements are complex and subject to frequent change. They impose strict liability in some cases without regard to negligence or fault and expose us to liability for the conduct of, or conditions caused by, others, or for our acts that may otherwise have complied with all applicable requirements when we performed them. Stricter laws and regulations, more stringent interpretations of existing laws or regulations or the future discovery of environmental conditions may impose new liabilities on us, reduce operating hours, require additional investment by us in pollution control equipment or impede our opening new or expanding existing plants or facilities.

 

***We depend on our senior management and we may be materially harmed if we lose any member of our senior management.***

 

We are dependent upon the services of our senior management, especially Paul Detwiler, Jr., Donald Detwiler, Paul Detwiler, III, Steven Detwiler and James W. Van Buren. Because these members of our senior management team have been with us for approximately 30 years on average and have contributed greatly to our growth, their services would be very difficult, time consuming and costly to replace. We maintain a key man insurance policy for each of Paul Detwiler, Jr., Donald Detwiler, Paul Detwiler, III, James W. Van Buren, Steven Detwiler and Jeffrey Detwiler. The loss of key management personnel or our inability to attract and retain qualified management personnel could have a material adverse effect on us. A decision by any of these individuals to leave us, to compete against us or to reduce his involvement could have a material adverse effect on our business.

 

***We may not be able to grow our business effectively or successfully implement our growth plans if we are unable to recruit additional management and other personnel.***

 

Our ability to continue to grow our business effectively and successfully implement our growth strategy is partially dependent upon our ability to attract and retain qualified management employees and other key employees. We believe there is a limited number of qualified people in our business and the industry in which we compete. As such, there can be no assurance that we will be able to identify and retain the key personnel that may be necessary to grow our business effectively or successfully implement our growth strategy. Our inability to attract and retain talented personnel could limit our ability to grow our business.

 

***Labor disputes could disrupt operations of our businesses.***

 

As of February 28, 2013, labor unions represent approximately 31% of our total employees. Our collective bargaining agreements for employees generally expire between 2013 and 2016. Although we have good relations with our employees and unions, disputes with our trade unions, or the inability to renew our labor agreements, could lead to strikes or other actions that could disrupt our business, raise costs, and reduce revenues and earnings from the affected locations.

 

***Our operations are subject to special hazards that may cause personal injury or property damage, subjecting us to liabilities and possible losses which may not be covered by insurance.***

 

Operating hazards inherent in our business can cause personal injury and loss of life, damage to or destruction of property, plant and equipment and environmental damage. We maintain insurance coverage in amounts and against the risks we believe are consistent with industry practice, but this insurance may not be adequate or available to cover all losses or liabilities we may incur in our operations. Our insurance policies are subject to varying levels of deductibles. Losses up to our deductible amounts are accrued based upon our estimates of the ultimate liability for claims incurred and an estimate of claims incurred but not reported. However, liabilities subject to insurance are difficult to assess and estimate due to unknown factors, including the severity of an injury, the determination of our liability in proportion to other parties, the number of incidents not reported and the effectiveness of our safety programs. If we were to experience insurance claims or costs above our estimates, we might also be required to use working capital to satisfy these claims rather than using working capital to maintain or expand our operations.

 

***Unexpected factors affecting self-insurance claims and reserve estimates could adversely affect our business.***

 

We use a combination of third-party insurance and self-insurance to provide for potential liabilities for workers’ compensation, general liability, vehicle accident, property and medical benefit claims. Although we believe we have minimized our exposure on individual claims, for the benefit of costs savings we have accepted the risk of a large amount of independent multiple material claims

 

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arising, which could have a significant impact on our earnings. We have a wholly-owned captive insurance company, RSIC, for workers’ compensation, general liability, automobile and property coverage. We are liable for up to $0.3 million per year for health care claims and RSIC is responsible for amounts in excess of our $0.3 million deductible up to $1.0 million for each health care claim, with coverage from insurance carriers after the $1.0 million retention. We are responsible for the first $0.3 million for each property and casualty claim and RSIC is responsible for amounts in excess of our $0.3 million deductible up to the first $2.0 million of every property and casualty claim.

 

We estimate the liabilities associated with the risks retained by us, in part, by considering historical claims experience, demographic and severity factors and other actuarial assumptions which, by their nature, are subject to a high degree of variability. Any projection of losses concerning workers’ compensation and general liability is subject to a high degree of variability. Among the causes of this variability are unpredictable external factors affecting future inflation rates, discount rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns.

 

***We may incur material costs and losses as a result of claims that our products do not meet regulatory requirements or contractual specifications.***

 

We provide to our customers specified product designs that meet building code or other regulatory requirements and contractual specifications for measurements such as durability, compressive strength, weight-bearing capacity and other characteristics. If we fail or are unable to provide products meeting these requirements and specifications, material claims may arise against us and our reputation could be damaged. Additionally, if a significant uninsured, non-indemnified or product-related claim is resolved against us in the future, that resolution may increase our costs and reduce our profitability and cash flows.

 

***We identified material weaknesses and significant deficiencies in our internal control over financial reporting during the years ended February 28, 2013 and February 29, 2012 and have a history of material weaknesses and significant deficiencies in our internal control in prior years as well. If we fail to maintain an effective system of internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected. In addition, if we are unable to implement methods to document, review and test our control policies, procedures and systems, we may fail to comply in the future with our SEC reporting obligations, including the requirement to provide management’s assessment of our internal control on financial reporting.***

 

Effective internal controls are necessary for us to provide timely and reliable financial reports and effectively prevent fraud. Any inability to provide reliable financial reports or prevent fraud could harm our business. If we fail to maintain the adequacy of our internal controls, our financial statements may not accurately reflect our financial condition. We have identified certain material weaknesses in our internal control over financial reporting in current and prior years, including those described in Item 9A of this Annual Report on Form 10-K/A and the following:

 

·            identification by our independent auditors of misstatements in internal drafts of our financial statements, disclosures and accounting records that were not initially identified by our internal control process, indicating weaknesses with respect to our ability to properly monitor and account for both routine and non-routine transactions;

 

·            the absence of an internal audit function;

 

·            the need to enhance the skill set within our tax department and associated processes;

 

·            the need to enhance the consistency and application of our systems and internal controls which are highly manual and inconsistent across divisions and locations;

 

·            the insufficiency of documentation of financial policies and procedures;

 

·            the need to enhance our budgeting and forecasting capabilities;

 

·            the need for policies and procedures related to our consolidation process which is a time-intensive process requiring multiple adjustments to prepare and present accurate and complete financial data; and

 

·            general data security and restricted access controls of information systems.

 

In addition, we recently implemented a new enterprise resource planning system (“ERP”), which is not yet operational across all of our business units. As previously disclosed in our filings with the SEC, we have in the past experienced and are experiencing significant delays and other issues stemming from our initial implementation which we have been and are continuing to actively resolve.

 

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Any impact from the issues we are currently experiencing or additional delays in the implementation of this system could cause further disruption of our internal control over financial reporting and cause delays in our ability to adequately assess our internal control over financial reporting. Any delay in documenting, reviewing and testing our internal control could cause us to fail to comply with our SEC reporting obligations related to our management’s assessment of our internal control over financial reporting and, if we do so, we would be in violation of our obligations under the Sarbanes-Oxley Act, the Exchange Act and the applicable SEC rules and regulations.  Our ABL Facility contained a covenant that required us to deliver our fiscal year 2012 annual financial statements to the lender by May 29, 2012. On September 7, 2012 we entered into an amendment to the ABL Facility, and subsequent letters on September 28, 2012, November 9, 2012 and December 7, 2012 to change the required delivery date of the audited February 29, 2012 financial statements and the required delivery date of our first and second quarter results and financial statements to December 15, 2012, January 1, 2013, and February 15, 2013, respectively. Additionally, on December 7, 2012 we entered into a second amendment to our ABL Facility to change the required delivery date of our third quarter results and financial statements to March 31, 2013.  On February 14, 2013, we received additional extensions of time to issue our Quarterly report on Form 10-Q for the second quarter of fiscal year 2013 to February 28, 2013 and to issue our Quarterly report on Form 10-Q for the third quarter of fiscal year 2013 to April 1, 2013.

 

There can be no guarantee the Company will not need to obtain similar amendments in the future. A failure to obtain such amendment could result in an acceleration of our indebtedness under our ABL loan facility and a cross-default under our other indebtedness, including our $250.0 million 11% senior notes due 2018 (the “Notes”) and our $265.0 million 13% senior secured notes due 2018 (the “Secured Notes”).

 

If we fail to remediate any material weakness or significant deficiency, maintain effective internal control over our financial reporting or comply with the federal securities rules and regulations applicable to us, including the Sarbanes-Oxley Act and our SEC reporting obligations related to our internal control over financial reporting, our financial statements may be inaccurate, our ability to report our financial results on a timely and accurate basis may be adversely affected, we may be unable to obtain an unqualified audit opinion, and our access to the capital markets may be restricted. In addition, we may, in the future, identify further material weaknesses or significant deficiencies in our internal control over financial reporting. Each of the foregoing could impact the reliability and timeliness of our financial reports and could cause investors to lose confidence in our reported financial information, which could have a negative effect on our business and the value of our securities. We may also be required to restate our financial statements from prior periods.

 

Implementation of plans to document and remediate our internal control system may divert management’s attention from other aspects of our business and place a strain on our management, operational and financial resources. In addition, we may, in the future, identify further material weaknesses or significant deficiencies in our internal control over financial reporting.

 

***The cancellation of significant contracts or our disqualification from bidding for, or being awarded, new contracts could reduce revenues and have a material adverse effect on our results of operations.***

 

Contracts that we enter into with governmental entities can usually be canceled at any time by them with payment only for the work already completed. In addition, we could be prohibited from bidding on or being awarded certain governmental contracts and other contracts if we fail to maintain qualifications required by those entities, including failing to post required surety bonds or meet disadvantaged business or minority business requirements, bidding on an amount outside of the government entity’s estimate or including a bid item which the government entity determines is unacceptable. A cancellation of an unfinished contract or our disqualification from the bidding process could cause our equipment to be idled for a significant period of time until other comparable work became available, which could have a material adverse effect on our business and results of operations.

 

***We may incur increased costs due to fluctuation in commodity prices.***

 

We are subject to commodity price risk with respect to price changes in energy, including fossil fuels, electricity and natural gas for production of hot mix asphalt and cement and diesel fuel for distribution and production related vehicles. See “Item 7A —Quantitative and Qualitative Disclosures About Market Risk.”

 

***We may incur increased costs due to fluctuation in interest rates.***

 

We are exposed to risks associated with fluctuations in interest rates in connection with our variable rate debt, including under the ABL Facility. Any material and untimely changes in interest rates could result in significant losses to us. See “Item 7A —Quantitative and Qualitative Disclosures About Market Risk.”

 

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***We are dependent on information technology and our systems and infrastructure face certain risks, including cybersecurity risks and data leakage risks.***

 

We are dependent on information technology systems and infrastructure. Any significant breakdown, invasion, destruction or interruption of these systems by employees, others with authorized access to our systems, or unauthorized persons could negatively impact operations. There is also a risk that we could experience a business interruption, theft of information, or reputational damage as a result of a cyber-attack, such as an infiltration of a data center, or data leakage of confidential information either internally or at our third-party providers. While we have invested in the protection of our data and information technology to reduce these risks and periodically test the security of our information systems network, there can be no assurance that our efforts will prevent breakdowns or breaches in our systems that could adversely affect our business. Management is not aware of a cybersecurity incident that has had a material impact on our operations.

 

**Item 1B****.****                          ****UNRESOLVED STAFF COMMENTS.**

 

Not applicable.

 

**Item 2****.****                                   ****PROPERTIES.**

 

Our headquarters are located in a 70,000 square foot building which we lease in New Enterprise, Pennsylvania, under a lease expiring in 2023. See “Item 13—Certain Relationships and Related Transactions, and Director Independence.”

 

We also operate 52 quarries and sand deposits, 30 hot mix asphalt plants, 19 fixed and portable ready mixed concrete plants, four concrete products production plants, three lime distribution centers and six construction supply centers. For our safety services and equipment business, we conduct operations through five manufacturing facilities and 37 branch offices.

 

Through acquisitions of raw land and existing quarries, we have assembled significant operating reserves throughout our geographic market area. We estimate that we currently own or have under lease approximately 2.0 billion tons of permitted proven recoverable and probable recoverable aggregate reserves, with an average estimated useful life of 115 years at current production levels.

 

Proven reserves are determined through the testing of samples obtained from closely spaced subsurface drilling and/or exposed pit faces. Proven reserves are sufficiently understood so that quantity, quality, and engineering conditions are known with sufficient accuracy to be mined without the need for any further subsurface work. Actual required spacing is based on geologic judgment about the predictability and continuity of each deposit.

 

Probable reserves are determined through the testing of samples obtained from subsurface drilling, but the sample points are too widely spaced to allow detailed prediction of quantity, quality, and engineering conditions. Additional subsurface work may be needed prior to mining the reserve.

 

Our reserve estimates were made by our geologists and engineers. Reserve estimates are based on various assumptions and any material inaccuracies in these assumptions could have a material impact on the accuracy of our reserve estimates. All of our quarries are open pit and are primarily accessible by road.

 

The following map shows the approximate locations of our permitted construction materials properties in New York, Pennsylvania and Delaware as of February 28, 2013:

 

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The following chart sets forth specifics of our production and distribution facilities:

 
| **Location**          | ** ** | **Owned/leased** | ** ** | **Type of Aggregate** | ** ** | **Proven and    Probable   Recoverable    Reserves   (million tons)** | ** ** | **Expected    Life   (years)** | ** ** | **FY 2013 Annual   Production   (million tons)** | ** ** | **Hot   Asphalt   Mix** | ** ** | **Ready   Mixed   Concrete** | ** ** | **Masonry   Blocks** | ** ** | **Lime   Distribution/   CSC (1)** | ** ** | **Precast/    Prestressed   Concrete** | ** ** |
|-----------------------|------------|------------------|------------|---------------------------------|------------|-------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------------------------------------------|------------|-------------------------|------------|------------------------------|------------|----------------------|------------|-----------------------------------------|------------|---------------------------------------------|------------|
| Alfred Station, NY    |       | Owned            |       | Sand and gravel                 |       | 6                                                                                         |       | 25                                  |       | 0.3                                                             |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Aschom, PA            |       | Owned            |       | Limestone                       |       | 90                                                                                        |       | 135                                 |       | 0.4                                                             |       | X                       |       | X                            |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Ashford, NY           |       | Owned            |       | —                          |       | —                                                                                    |       |                                |       |                                                            |       | X                       |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Bakersville, PA       |       | Owned            |       | Limestone                       |       | 29                                                                                        |       | 32                                  |       | 0.8                                                             |       | X                       |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Bath, PA              |       | Owned            |       | —                          |       | —                                                                                    |       |                                |       |                                                            |       | X                       |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Bedford, PA           |       | Owned            |       | —                          |       | —                                                                                    |       |                                |       |                                                            |       |                    |       |                         |       |                 |       | X                                       |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Bethlehem, PA         |       | Owned            |       | —                          |       | —                                                                                    |       |                                |       |                                                            |       | X                       |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Burkholder, PA        |       | Owned            |       | Limestone                       |       | 80                                                                                        |       | 94                                  |       | 0.8                                                             |       | X                       |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Central City, PA      |       | Owned            |       | Sandstone                       |       | 20                                                                                        |       | 113                                 |       | 0.2                                                             |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Chambersburg, PA      |       | Owned            |       | Limestone                       |       | 47                                                                                        |       | 39                                  |       | .0.7                                                            |       | X                       |       | X                            |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Clayton, DE           |       | Owned            |       | —                          |       | —                                                                                    |       |                                |       |                                                            |       |                    |       |                         |       |                 |       | X                                       |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Clifford, PA          |       | Owned            |       | Sandstone                       |       | 10                                                                                        |       | 21                                  |       | 0.4                                                             |       | X                       |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Como Park, NY         |       | Owned            |       | Limestone                       |       | 19                                                                                        |       | 80                                  |       | 0.4                                                             |       | X                       |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Cowlesville, NY(2)    |       | See footnote.    |       | —                          |       | —                                                                                    |       |                                |       |                                                            |       |                    |       | X                            |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Delmar, DE            |       | Owned            |       | —                          |       | —                                                                                    |       |                                |       |                                                            |       |                    |       |                         |       |                 |       | X                                       |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Denver, PA            |       | Owned            |       | Limestone                       |       | 34                                                                                        |       | 48                                  |       | 0.6                                                             |       | X                       |       | X                            |       |                 |       | X                                       |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Derry, PA             |       | Owned            |       | Limestone                       |       | —                                                                                    |       | —                              |       | —                                                          |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Dry Run, PA           |       | Leased/Owned(3)  |       | Limestone                       |       | 12                                                                                        |       | 89                                  |       | 0.1                                                             |       |                    |       | X                            |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Ebensburg, PA (Batch) |       | Owned            |       | —                          |       | —                                                                                    |       |                                |       |                                                            |       |                    |       | X                            |       |                 |       |                                    |       |                                        |       |

 

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| **Location**       | ** ** | **Owned/leased** | ** ** | **Type of Aggregate** | ** ** | **Proven and    Probable   Recoverable    Reserves   (million tons)** | ** ** | **Expected    Life   (years)** | ** ** | **FY 2013 Annual   Production   (million tons)** | ** ** | **Hot   Asphalt   Mix** | ** ** | **Ready   Mixed   Concrete** | ** ** | **Masonry   Blocks** | ** ** | **Lime   Distribution/   CSC (1)** | ** ** | **Precast/    Prestressed   Concrete** | ** ** |
|--------------------|------------|------------------|------------|---------------------------------|------------|-------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------------------------------------------|------------|-------------------------|------------|------------------------------|------------|----------------------|------------|-----------------------------------------|------------|---------------------------------------------|------------|
| Ebensburg, PA      |       | Leased(4)        |       | Processing   Facility           |       | —                                                                                    |       |                                |       |                                                            |       |                    |       |                         |       |                 |       | X                                       |       |                                        |       |
|               |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Egypt, PA          |       | Leased (5)       |       | Limestone                       |       | 17                                                                                        |       | 62                                  |       | 0.2                                                             |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|               |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Elizabethville, PA |       | Owned            |       | Sandstone                       |       | 26                                                                                        |       | 137                                 |       | 0.1                                                             |       | X                       |       |                         |       |                 |       |                                    |       |                                        |       |
|               |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Fairfield, PA      |       | Owned            |       | Limestone                       |       | 103                                                                                       |       | 641                                 |       | 0.1                                                             |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|               |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Franklinville, NY  |       | Owned            |       | Sand and gravel                 |       | 39                                                                                        |       | 70                                  |       | 0.5                                                             |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|               |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Gettysburg, PA     |       | Owned            |       | Traprock                        |       | 64                                                                                        |       | 87                                  |       | 0.4                                                             |       | X                       |       |                         |       |                 |       |                                    |       |                                        |       |
|               |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Greencastle, PA    |       | Owned            |       | —                          |       |                                                                                      |       |                                |       |                                                            |       |                    |       | X                            |       |                 |       |                                    |       |                                        |       |
|               |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Honey Brook, PA    |       | Owned            |       | Sand                            |       | 33                                                                                        |       | 109                                 |       | 0.3                                                             |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|               |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Jayne Bend, PA     |       | Leased(6)        |       | Sand and gravel                 |       | 1                                                                                         |       | 7                                   |       | 0.1                                                             |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|               |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Kutztown, PA       |       | Owned/Leased(7)  |       | Dolomite                        |       | 24                                                                                        |       | 33                                  |       | 0.4                                                             |       | X                       |       |                         |       |                 |       |                                    |       |                                        |       |
|               |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Lackawanna, NY     |       | Owned            |       | Port                            |       | —                                                                                    |       |                                |       |                                                            |       |                    |       | X                            |       |                 |       |                                    |       |                                        |       |
|               |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Ledge, NY          |       | Owned            |       | Limestone                       |       | 4                                                                                         |       | 15                                  |       | —                                                          |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|               |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Lewisburg, PA      |       | Owned            |       | Limestone and   High Calcium    |       | 24                                                                                        |       | 33                                  |       | 0.7                                                             |       | X                       |       |                         |       |                 |       |                                    |       |                                        |       |
|               |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Limeville, PA      |       | Owned            |       | Limestone                       |       | 26                                                                                        |       | 81                                  |       | 0.3                                                             |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|               |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Little Gap, PA     |       | Owned            |       | Sandstone                       |       | —                                                                                    |       | —                              |       | —                                                          |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|               |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Liverpool, PA      |       | Leased(8)        |       | Sandstone                       |       | —                                                                                    |       | —                              |       | —                                                          |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|               |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Martins Creek, PA  |       | Owned            |       | Limestone and   Dolomite        |       | 88                                                                                        |       | 438                                 |       | 0.1                                                             |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |

 

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Table of Contents

 
| **Location**          | ** ** | **Owned/leased** | ** ** | **Type of Aggregate** | ** ** | **Proven and    Probable   Recoverable    Reserves   (million tons)** | ** ** | **Expected    Life   (years)** | ** ** | **FY 2013 Annual   Production   (million tons)** | ** ** | **Hot   Asphalt   Mix** | ** ** | **Ready   Mixed   Concrete** | ** ** | **Masonry   Blocks** | ** ** | **Lime   Distribution/   CSC (1)** | ** ** | **Precast/    Prestressed   Concrete** | ** ** |
|-----------------------|------------|------------------|------------|---------------------------------|------------|-------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------------------------------------------|------------|-------------------------|------------|------------------------------|------------|----------------------|------------|-----------------------------------------|------------|---------------------------------------------|------------|
| McConnellstown, PA    |       | Owned            |       | Limestone                       |       | 2                                                                                         |       | —                              |       | —                                                          |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Mount Cydonia I, PA   |       | Owned            |       | Sandstone                       |       | 24                                                                                        |       | 49                                  |       | 0.2                                                             |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Mount Cydonia II, PA  |       | Owned            |       | Sand and gravel                 |       | —                                                                                    |       | —                              |       | 0.2                                                             |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Mount Cydonia III, PA |       | Owned            |       | Sandstone                       |       | 7                                                                                         |       | 42                                  |       | 0.1                                                             |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Naginey, PA           |       | Owned/Leased(9)  |       | Limestone and   High Calcium    |       | 25                                                                                        |       | 79                                  |       | 0.2                                                             |       | X                       |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Narvon, PA            |       | Owned            |       | Clay and   Limestone            |       | 2                                                                                         |       | 282                                 |       | —                                                          |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Nazareth, PA          |       | Owned            |       | Limestone and   Dolomite        |       | 5                                                                                         |       | 9                                   |       | 0.4                                                             |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| New Holland, PA       |       | Owned            |       | —                          |       | —                                                                                    |       |                                |       |                                                            |       |                    |       | X                            |       | X                    |       | X                                       |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| New Paris, PA         |       | Owned            |       | Limestone                       |       | 22                                                                                        |       | —                              |       | —                                                          |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Nottingham, PA        |       | Owned            |       | —                          |       | —                                                                                    |       |                                |       |                                                            |       |                    |       | X                            |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Ogletown, PA          |       | Owned/Leased(10) |       | Limestone                       |       | 27                                                                                        |       | 1700                                |       | —                                                          |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Olean, NY             |       | Owned            |       | —                          |       | —                                                                                    |       |                                |       |                                                            |       | X                       |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Oley, PA              |       | Owned            |       | Limestone,   Dolomite           |       | 64                                                                                        |       | 208                                 |       | 0.2                                                             |       | X                       |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Orbisonia, PA         |       | Owned            |       | Limestone                       |       | 38                                                                                        |       | 308                                 |       | 0.1                                                             |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Ormrod, PA            |       | Owned/Leased(11) |       | Limestone,   Dolomite           |       | 39                                                                                        |       | 59                                  |       | 0.7                                                             |       | X                       |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Riverton, PA          |       | Leased(12)       |       | Sand and gravel                 |       | —                                                                                    |       | —                              |       | —                                                          |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|                  |       |             |       |                            |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Roaring Spring, PA    |       | Owned            |       | Dolomite,   Limestone           |       | 39                                                                                        |       | 26                                  |       | 1.3                                                             |       | X                       |       | X                            |       |                 |       | X                                       |       | X                                           |       |

 

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Table of Contents

 
| **Location**      | ** ** | **Owned/leased** | ** ** | **Type of Aggregate**     | ** ** | **Proven and    Probable   Recoverable    Reserves   (million tons)** | ** ** | **Expected    Life   (years)** | ** ** | **FY 2013 Annual   Production   (million tons)** | ** ** | **Hot   Asphalt   Mix** | ** ** | **Ready   Mixed   Concrete** | ** ** | **Masonry   Blocks** | ** ** | **Lime   Distribution/   CSC (1)** | ** ** | **Precast/    Prestressed   Concrete** | ** ** |
|-------------------|------------|------------------|------------|-------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------------------------------------------|------------|-------------------------|------------|------------------------------|------------|----------------------|------------|-----------------------------------------|------------|---------------------------------------------|------------|
| Schoeneck, PA     |       | Owned            |       | Limestone,   Dolomite, High Calcium |       | 66                                                                                        |       | 68                                  |       | 0.2                                                             |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|              |       |             |       |                                |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Shamokin, PA      |       | Owned/Leased(13) |       | Sandstone                           |       | 8                                                                                         |       | 45                                  |       | 0.1                                                             |       | X                       |       |                         |       |                 |       |                                    |       |                                        |       |
|              |       |             |       |                                |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Sheshequin, PA    |       | Owned/Leased(14) |       | Sand and gravel                     |       | 2                                                                                         |       | 4                                   |       | 0.2                                                             |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|              |       |             |       |                                |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Shippensburg, PA  |       | Owned            |       | Limestone                           |       | 164                                                                                       |       | 252                                 |       | 0.3                                                             |       | X                       |       | X                            |       |                 |       |                                    |       |                                        |       |
|              |       |             |       |                                |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Somerset, PA      |       | Owned            |       | —                              |       | —                                                                                    |       |                                |       |                                                            |       |                    |       | X                            |       |                 |       |                                    |       |                                        |       |
|              |       |             |       |                                |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Sproul, PA        |       | Leased(15)       |       | Limestone                           |       | —                                                                                    |       | —                              |       | —                                                          |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|              |       |             |       |                                |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Strodes Mill, PA  |       | Owned            |       | Sandstone                           |       | —                                                                                    |       | —                              |       | —                                                          |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|              |       |             |       |                                |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Tioga, PA         |       | Leased(16)       |       | Sandstone                           |       | 5                                                                                         |       | 95                                  |       | —                                                          |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|              |       |             |       |                                |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Towanda, PA       |       | Owned            |       | —                              |       | —                                                                                    |       | —                              |       | —                                                          |       | X                       |       | X                            |       | X                    |       | X                                       |       |                                        |       |
|              |       |             |       |                                |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Tyrone Forge, PA  |       | Owned            |       | Limestone                           |       | 92                                                                                        |       | 89                                  |       | 0.9                                                             |       | X                       |       | X                            |       |                 |       |                                    |       |                                        |       |
|              |       |             |       |                                |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Union Furnace, PA |       | Owned            |       | Limestone                           |       | 271                                                                                       |       | 961                                 |       | 0.3                                                             |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|              |       |             |       |                                |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Viola, DE         |       | Owned            |       | —                              |       | —                                                                                    |       |                                |       |                                                            |       |                    |       |                         |       |                 |       | X                                       |       |                                        |       |
|              |       |             |       |                                |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Weaverland, PA    |       | Owned            |       | Limestone                           |       | 68                                                                                        |       | 76                                  |       | 0.6                                                             |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|              |       |             |       |                                |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Wehrle Drive, NY  |       | Owned            |       | Limestone                           |       | 163                                                                                       |       | 126                                 |       | 1.2                                                             |       | X                       |       | X                            |       |                 |       |                                    |       |                                        |       |
|              |       |             |       |                                |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Wescosville, PA   |       | Owned            |       | —                              |       | —                                                                                    |       |                                |       |                                                            |       | X                       |       |                         |       | X                    |       | X                                       |       |                                        |       |
|              |       |             |       |                                |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Whitehall, PA     |       | Owned            |       | Limestone,   Dolomite               |       | 5                                                                                         |       | —                              |       | —                                                          |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|              |       |             |       |                                |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Williamson, PA    |       | Owned            |       | Limestone                           |       | 43                                                                                        |       | 708                                 |       | —                                                          |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
|              |       |             |       |                                |       |                                                                                      |       |                                |       |                                                            |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |
| Winfield, PA      |       | Owned            |       | Limestone                           |       | —                                                                                    |       | —                              |       | —                                                          |       |                    |       |                         |       |                 |       |                                    |       |                                        |       |

 

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(1)                     Construction Supply Centers

 

(2)                     Cowlesville, NY is owned by a third party which leases the concrete batch plant to the Company.  Pursuant to a batch agreement, Area Ready-Mix provides batching services at this plant.

 

(3)                      The term of this lease is April 4, 1996 through April 4, 2016. There are no renewal rights.

 

(4)                      The term of this lease expires December 31, 2021. The lease may be renewed for up to an additional five (5) years.

 

(5)                      The term of this lease is January 1, 2010 through January 1, 2020.  The lease shall automatically renew for five (5) additional periods of five (5) years each.

 

(6)                      The term of this lease is September 8, 1992 through September 8, 2042. There are no renewal rights.

 

(7)                      The term of this lease is November 19, 1976 through November 19, 2056. There are no renewal rights.

 

(8)                      The terms for the two leases at this site are both January 1, 2009 through December 31, 2018. Both leases will automatically renew for an additional ten (10) year term.

 

(9)                      The terms for the two leases at this site will continue until all commercially recoverable limestone has been recovered and removed from the premises. There is no option to renew.

 

(10)               The term of this lease is January 1, 1999 through January 1, 2019. The lease may be renewed for three (3) additional terms of five (5) years each after the expiration of the initial term.

 

(11)               The term of this lease is March 1, 2002 through February 28, 2020. After the expiration of the term, the lease will continue on a year-to-year basis.

 

(12)               The term of this lease is November 1, 2004 through October 31, 2024. There are no renewal rights.

 

(13)               The initial term of this lease was May 1, 1989 through May 1, 1990, but the lease automatically renews on a year-to-year basis.

 

(14)               The term of the lease is May 23, 1996 until all materials subject to the lease have been completely mined or removed from the premises. There are no renewal rights.

 

(15)               The term of this lease is March 5, 1999 through March 5, 2024. The lease may be renewed for an additional twenty-five (25) year term.

 

(16)               The initial term of this lease was June 1, 1986 through June 1, 1991. The lease may be renewed for successive periods of five (5) years. The current term of this lease will expire on May 31, 2016.

 

In addition, we operate three portable ready mixed concrete plants.

 

The following chart sets forth specifics of our traffic safety equipment manufacturing facilities:

 

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Table of Contents

 
| **Facility**                                                                        | ** ** | **Owned/Leased** | ** ** | **Square Footage**  | ** ** |
|-------------------------------------------------------------------------------------|------------|------------------|------------|--------------------------|------------|
| St Charles, Illinois manufacturing   facility, warehouse and office space |       | Owned            |       | 49,000 sq. ft. |       |
| Harrisburg, Pennsylvania manufacturing facility                                     |       | Owned            |       | 28,000 sq. ft. |       |
| Lake City, Florida manufacturing facility                                           |       | Owned            |       | 28,632 sq. ft. |       |
| New Castle, Delaware manufacturing facility                                         |       | Leased           |       | 12,110 sq. ft. |       |
| Garland, Texas manufacturing facility                                               |       | Leased           |       | 40,050 sq. ft. |       |

 

**Item 3****.****                                   ****LEGAL PROCEEDINGS.**

 

We are a party from time to time to legal proceedings relating to our operations. Our ultimate legal and financial liability in respect to all legal proceeding in which we are involved at any given time cannot be estimated with any certainty. However, based upon examination of such matters and consultation with counsel, management currently believes that the ultimate outcome of these contingencies, net of liabilities already accrued on our consolidated balance sheet, will not have a material adverse effect on our consolidated financial position, although the resolution in any reporting period of one or more of these matters could have a significant impact on our results of operations and/or cash flows for that period.

 

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 of this report.

 

**Item 4****.****                                   ****MINE SAFETY DISCLOSURES.**

 

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 of this Annual Report on Form 10-K.

 

**PART II**

 

**Item 5****.****                                   ****MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.**

 

There is no established public trading market for any class of common stock of NESL. All of the issued and outstanding common stock of NESL is held by members or trusts established by and for members of the Detwiler family. See “Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” As of May 17, 2013, there were approximately 16 beneficial holders of the common stock.

 

With the exception of certain tax-related dividends, we have not issued a dividend to any of our equity holders in twenty years. The indentures governing our notes and our ABL Facility contain covenants that limit our ability to pay dividends. See “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

We have no equity compensation plans.

 

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**Item 6****.****                                   ****SELECTED FINANCIAL DATA.**

 

The following table presents our selected historical consolidated financial data for the periods indicated. The following information should be read in conjunction with, and is qualified by reference to, the section entitled “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and the notes thereto included elsewhere herein.

 

The consolidated balance sheet data of NESL as of February 28, 2013 and as of February 29, 2012 and the related consolidated statements of comprehensive loss data of NESL for each of the fiscal years ended February 28, 2013 and February 29, 2012 are derived from our audited consolidated financial statements and the notes thereto included in “Item 8—Financial Statements and Supplementary Data.” The consolidated balance sheet data of NESL as of February 28, 2011, February 28, 2010 and February 28, 2009 and the related consolidated statements of operations data of NESL for the fiscal years ended February 28, 2011, February 28, 2010 and February 28, 2009 has been derived from the audited consolidated financial statements of NESL not included herein.

 
| ** **                                                      | ** ** | **February 28,******** 2009** | ** ** | **February 28,******** 2010** | ** ** | **February 28,******** 2011** | ** ** | **February 29,******** 2012** | ** ** | **February 28,******** 2013** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
|                                                            |       |                                    |       |                                    |       |                                    |       |                                    |       |                                    |       |
| **Consolidated Statement of   Operations Data: (in thousands)** |       |                                    |       |                                    |       |                                    |       |                                    |       |                                    |       |
| Revenue                                                         |       | $                                       | 785,180    |                                    | $          | 736,857                                 |       | $                                       | 725,399    |                                    | $          | 705,934 |   | $ | 677,090 |   |
| Operating costs and expenses:                                   |       |                                    |       |                                    |       |                                    |       |                                    |       |                                    |       |
| Costs of revenue                                                |       | 620,145                                 |       | 580,612                                 |       | 578,611                                 |       | 575,486                                 |       | 557,503                                 |       |
| Depreciation, depletion and amortization                        |       | 42,279                                  |       | 43,742                                  |       | 45,917                                  |       | 51,674                                  |       | 50,942                                  |       |
| Intangible asset impairment                                     |       | 44,873                                  |       | —                                  |       | —                                  |       | 1,100                                   |       | 4,704                                   |       |
| Pension and profit sharing                                      |       | 8,895                                   |       | 9,690                                   |       | 8,907                                   |       | 7,622                                   |       | 8,325                                   |       |
| Selling, administrative and general expenses                    |       | 59,223                                  |       | 64,779                                  |       | 61,547                                  |       | 64,511                                  |       | 77,138                                  | (5)        |
| (Gain) loss on disposals of property, equipment   and software  |       | (595                                    | )          | (261                                    | )          | (600                                    | )          | 808                                     |       | 323                                     |       |
| Operating income (loss)                                         |       | 10,360                                  |       | 38,295                                  |       | 31,017                                  |       | 4,733                                   |       | (21,845                                 | )          |
| Other income (expense):                                         |       |                                    |       |                                    |       |                                    |       |                                    |       |                                    |       |
| Interest income                                                 |       | 667                                     |       | 593                                     |       | 318                                     |       | 343                                     |       | 140                                     |       |
| Interest expense                                                |       | (40,185                                 | )          | (29,536                                 | )(1)       | (41,586                                 | )(2)       | (46,902                                 | )          | (75,987                                 | )(3)       |
| Total other expense                                             |       | (39,518                                 | )          | (28,943                                 | )          | (41,268                                 | )          | (46,559                                 | )          | (75,847                                 | )          |
| (Loss) income before income taxes                               |       | (29,158                                 | )          | 9,352                                   |       | (10,251                                 | )          | (41,826                                 | )          | (97,692                                 | )          |
| Income tax expense (benefit)                                    |       | 1,060                                   |       | 392                                     |       | (4,478                                  | )          | (16,397                                 | )          | (41,558                                 | )          |
| Net (loss) income                                               |       | (30,218                                 | )          | 8,960                                   |       | (5,773                                  | )          | (25,429                                 | )          | (56,134                                 | )          |
| Noncontrolling interest in net (income) loss                    |       | (1,214                                  | )          | (1,165                                  | )          | (1,195                                  | )          | (820                                    | )          | (1,384                                  | )          |
| Net (loss) income attributable to stockholders                  |       | $                                       | (31,432    | )                                       | $          | 7,795                                   |       | $                                       | (6,968     | )                                       | $          | (26,249 | ) | $ | (57,518 | ) |
| **Other Financial Data:**                                       |       |                                    |       |                                    |       |                                    |       |                                    |       |                                    |       |
| Cash capital expenditures (4)                                   |       | 28,263                                  |       | 24,571                                  |       | 32,706                                  |       | 43,954                                  |       | 42,417                                  |       |
| **Consolidated Balance Sheet Data   (end of period):**          |       |                                    |       |                                    |       |                                    |       |                                    |       |                                    |       |
| Cash, restricted cash and cash equivalents                      |       | $                                       | 18,219     |                                    | $          | 12,573                                  |       | $                                       | 21,916     |                                    | $          | 25,354 |   | $ | 19,657 |   |
| Accounts receivable, net                                        |       | 61,780                                  |       | 60,087                                  |       | 67,372                                  |       | 76,841                                  |       | 52,271                                  |       |
| Inventories                                                     |       | 118,745                                 |       | 127,214                                 |       | 129,422                                 |       | 132,195                                 |       | 125,144                                 |       |
| Property, plant, and equipment                                  |       | 408,590                                 |       | 390,530                                 |       | 382,965                                 |       | 371,574                                 |       | 371,868                                 |       |
| Total assets                                                    |       | 764,511                                 |       | 750,234                                 |       | 768,078                                 |       | 776,322                                 |       | $                                       | 734,188    |   |
| Long-term debt, including current portion                       |       | 518,080                                 |       | 484,896                                 |       | 500,846                                 |       | 529,013                                 |       | 577,987                                 |       |
| Total liabilities                                               |       | 688,904                                 |       | 665,788                                 |       | 690,907                                 |       | 726,454                                 |       | 741,778                                 |       |
| Total equity (deficit) and redeemable common stock              |       | $                                       | 75,607     |                                    | $          | 84,446                                  |       | $                                       | 77,171     |                                    | $          | 49,868 |   | $ | (7,590 | ) |

 

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(1)                     The decrease in interest expense from fiscal year 2009 to fiscal year 2010 was primarily the result of lower interest rates year over year.

 

(2)                     The increase in interest expense during fiscal year 2011 was a result of an overall increase in borrowings and interest rates primarily related to the issuance of our 11% senior notes due 2018 in August 2010.

 

(3)                     The increase in interest expense during fiscal year 2013 was a result of an overall increase in borrowings and interest rates primarily related to the issuance of our 13% senior secured notes due 2018 and the write-off of $6.4 million of unamortized deferred financing fees associated with the debt repaid.

 

(4)                     Cash paid for expenditures includes capitalized software expenditures.

 

(5)                     The increase in expense from fiscal year 2012 to fiscal year 2013 was attributable to costs associated with the remediation of our ERP system of approximately $4.3 million and higher legal and accounting fees of $7.1 million.

 

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**Item 7****.****                                   ****MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

 

**General**

 

We are a leading privately held, vertically integrated construction materials supplier and heavy/highway construction contractor in Pennsylvania and western New York and a national traffic safety services and equipment provider.  Founded in 1924, we are one of the top 10 construction aggregates producers based on tonnage of crushed stone produced and one of the top 50 highway contractors based on revenues in the United States, according to industry surveys.

 

We operate in three segments based upon the nature of our products and services: construction materials, heavy/highway construction and traffic safety services and equipment. Our construction materials operations are comprised of aggregate production (crushed stone and construction sand and gravel), hot mix asphalt production, ready mixed concrete production and the production of concrete products, including precast/prestressed structural concrete components and masonry blocks.  Another of our core businesses, heavy/highway construction, includes heavy construction, blacktop paving and other site preparation services. Our heavy/highway construction operations are primarily supplied with construction materials from our construction materials operation. Our third core business, traffic safety services and equipment, consists primarily of sales, leasing and servicing of general and specialty traffic control and work zone safety equipment and devices to industrial construction end-users.

 

Our core businesses operate primarily in Pennsylvania and western New York, except for our traffic safety services and equipment business, which maintains a national sales network for our traffic safety products and provides traffic maintenance and protection services primarily in the eastern United States.

 

Our revenue is derived from sales to customers that serve multiple end-use markets. Because of the diversity of construction materials and services that we offer, we are able to meet a wide range of customer requirements on a local scale.  We may not always know the end-use for our materials due to the diversity of our product offerings and the fact that our customers serve the various end-use markets, such as public or private sector. However, we believe based upon reasonable assumptions and knowledge of our customers and the possible end-use of particular materials and services, that in fiscal year 2013 approximately 55% to 60% of our revenue was derived from public sector end-use markets and 40% to 45% of our revenue was derived from private sector end-use markets, with approximately three-fourths of our private sector revenue being from non-residential construction. 

 

The majority of our construction contracts are obtained through competitive bidding in response to advertisements and as a result of following the letting schedule provided by PennDOT. Our bidding activity is affected by such factors as the nature and volume of available jobs to bid, contract backlog, available personnel, current utilization of equipment and other resources, and competitive considerations. Bidding activity, contract backlog and revenue resulting from the award of new contracts may vary significantly from period to period.

 

Our typical construction project begins with the preparation and submission of a bid to a customer. If selected as the successful bidder, we generally enter into a contract with the customer that provides for payment upon completion of specified work or units of work as identified in the contract. Our contracts frequently call for retention; a specified percentage withheld from each payment until the contract is completed and the work accepted by the customer.

 

Demand for our products is primarily dependent on the overall health of the economy, and federal, state and local public funding levels. The primary end uses for our products include infrastructure projects such as highways, bridges, and other public institutions, as well as private residential and non-residential construction. A stagnant or declining economy will generally result in reduced demand for construction and construction materials in the private sector. This reduced demand increases competition for private sector projects and will ultimately also increase competition in the public sector as companies migrate from bidding on scarce private sector work to projects in the public sector. Greater competition can reduce our revenues and/or have a downward impact on our gross profit margins. In addition, a stagnant or declining economy tends to produce less tax revenue for public agencies, thereby decreasing a source of funds available for spending on public infrastructure improvements. Some funding sources that have been specifically earmarked for infrastructure spending, such as diesel and gasoline taxes, are not as directly affected by a stagnant or declining economy, unless actual consumption is reduced.  While some states and localities may seek to redirect funds related to diesel and gasoline taxes in an effort to balance their budgets, the Commonwealth of Pennsylvania currently does not allow for such activities.  Funds earmarked for infrastructure purposes in the Commonwealth of Pennsylvania are constitutionally required to be used for that purpose.

 

Market conditions remained challenging throughout fiscal year 2013. Our business continues to be impacted by the slow pace of economic recovery and the continued pressure on state budgets which has limited state spending on public highway construction projects. The overall housing market remains weak and private non-residential construction is still experiencing a slow recovery. Competition remains strong as a result of the weak public and private sector demand, with residential and commercial contractors bidding aggressively on projects, which continues to affect our profitability. Our margins also remain under pressure as a result of higher fuel and liquid asphalt costs. We expect that the challenges to our business environment will persist throughout fiscal year 2014, which will continue to affect our heavy/highway construction and traffic safety services and equipment businesses, which constitute a significant portion of our overall business. We expect that these conditions will continue to negatively impact our financial position, results of operations, cash flows and liquidity throughout fiscal year 2014. To address these challenges, we are continuing our efforts to monitor and adjust our cost structure in our operating plants and control administrative and general spending. We also actively review our assets and properties on an ongoing basis for strategic disposals of lesser performing or non-core assets.

 

**Seasonality and Cyclical Nature of Our Business**

 

Almost all of our products are produced and consumed outdoors. Our financial results for any quarter do not necessarily indicate

 

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the results expected for the year because seasonal changes and other weather-related conditions can affect the production and sales volumes of our products. Normally, the highest sales and earnings are in the second and third quarters and the lowest are in the first and fourth quarters. Our sales and earnings are sensitive to national, regional and local economic conditions and particularly to cyclical swings in construction spending, especially in the private sector.  Our primary balance sheet accounts, such as accounts receivable and accounts payable, vary greatly during these peak periods, but return to historical levels as our operating cycle is completed each fiscal year.

 

**Components of Operating Results**

 

***Revenue***

 

We derive our revenues predominantly from the operations of our three core businesses: construction materials, heavy/highway construction and traffic safety services and equipment. Our construction materials business consists of aggregate production (crushed stone and construction sand and gravel), hot mix asphalt production, ready mixed concrete production and concrete products including precast/prestressed structural concrete components and masonry blocks. Our heavy/highway construction business primarily relates to heavy construction, blacktop paving and other site preparation services. Our traffic safety services and equipment business consists primarily of sales, leasing and servicing of general and specialty traffic control and work zone equipment and devices, including traffic cones, flashing lights, barricades, plastic drums, arrow boards, construction signs and crash attenuators.

 

The following is a summary of how we recognize revenue in our core businesses:

 

·            **Construction materials**. We generally recognize revenue on the sale of construction materials and concrete products, other than specialized concrete beams, when they are shipped and the customer takes title and assumes risk of loss.  We account for the sale of specialized concrete beams under the units-of-production method. Under this method, the revenue is recognized as the units are produced under firm contracts.

 

·            **Heavy/highway construction. **The Company recognizes revenue on construction contracts under the percentage-of-completion method of accounting, as measured by the cost incurred to date over estimated total cost. The typical contract life cycle for these projects can be up to two to four years in duration. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to revenues and costs, which are recognized during the period in which the revisions are identified. Amounts attributable to contract claims are included in revenues when realization is probable and the amounts can be reasonably estimated. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are identified. Contract costs include all direct material, labor, subcontract and other costs and those indirect costs related to contract performance, such as indirect salaries and wages, equipment repairs and depreciation, insurance and payroll taxes. Administrative and general expenses are charged to expense as incurred.  Costs and estimated earnings in excess of billings on uncompleted contracts represent the excess of contract revenue recognized to date over billings to date. Billings in excess of costs and estimated earnings on uncompleted contracts represent the excess of billings to date over the amount of revenue recognized to date.

 

·            **Traffic safety services and equipment**. Our rental contract periods for our traffic safety products are daily, weekly or monthly and are recognized on a straight-line basis. We recognize revenues from the sale of rental equipment and new equipment at the time of delivery to, or pick-up by, the customer. We also recognize sales of contractor supplies at the time of delivery to, or pick-up by, the customer.

 

***Operating Costs and Expenses***

 

The key components of our operating costs and expenses consist of the following:

 

·            **Cost of revenue**. Cost of revenue consists of all production and delivery costs related to our revenue and primarily includes all labor, raw materials, subcontractor costs, equipment rental and maintenance and manufacturing overhead. Our cost of revenue is directly impacted by fluctuations in commodity prices. As a result, our operating profit margins can be significantly impacted by the underlying cost of raw materials. We attempt to limit our exposure to changes in commodity prices by entering into purchase commitments when appropriate. In addition, we have sales price escalators in place for most public contracts and we aggressively seek to obtain escalators on private and commercial contracts.

 

·            **Depreciation, depletion, and amortization**. Our business is relatively capital-intensive.  We carry property, plant and equipment at cost on our balance sheet and assets under capital leases are stated at the lesser of the present value of minimum lease payments or the fair value of the leased item. Provision for depreciation is generally computed over estimated service lives by the straight-line method.

 

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The average depreciable lives by fixed asset category is as follows:

 
| Land improvements                                |   | 20 years       |   |
|--------------------------------------------------|--------|----------------|--------|
| Buildings, improvements and capitalized software |   | 8 - 40 years   |   |
| Crushing, prestressing and manufacturing plants  |   | 5 - 33 years   |   |
| Contracting equipment                            |   | 3 - 12.5 years |   |
| Trucks and autos                                 |   | 3 - 8 years    |   |
| Office equipment                                 |   | 5 - 10 years   |   |

 

Depletion of limestone deposits is calculated over proven and probable reserves by the units of production method on a quarry-by-quarry basis. Amortization expense is the periodic expense related to our other intangible assets, which were primarily acquired as part of the Stabler acquisition and the amortization of software cost related to our ERP.

 

·            **Pension and profit sharing.** We participate in several multiemployer pension plans, which provide defined benefits to certain employees covered by labor union contracts. These amounts were determined by the union contracts and we do not administer or control the funds. We also maintain, for certain salaried and hourly employees, an investment plan under which eligible employees can invest various percentages of their earnings, matched by an employer contribution of up to 6.0%. We may make special voluntary contributions to all employees eligible to participate in the investment plan, regardless of whether they contributed during the year. Additionally, we have two defined benefit pension plans covering certain union employees of one of our divisions located in Buffalo, New York.

 

·            **Selling, administrative and general expenses**. Selling, administrative and general expenses consist primarily of salaries and personnel costs for our sales and marketing, administration, finance and accounting, legal, information systems and human resources employees. Additional expenses include marketing programs, consulting and professional fees, travel, insurance and other corporate expenses.

 

**Executive Summary**

 

The following is a financial summary for the fiscal years ending February 28, 2013, February 29, 2012, and February 28, 2011:

 

·           Net revenue decreased year over year from fiscal year 2011 through fiscal year 2013 by 6.8%;

 

·           Cost of revenue also decreased year over year from fiscal year 2011 though fiscal year 2013, but only by 3.7%. Cost of revenue as a percent of revenue has increased from 79.8% in fiscal year 2011 to 82.3% in fiscal year 2013;

 

·           SA&G costs also increased year over year from $61.5 million in fiscal year 2011 to $77.2 million in fiscal year 2013; and

 

·           Cash provided from operations remains positive each fiscal year 2011, 2012 and 2013.

 

**Results of Operations**

 

The following table summarizes our operating results on a consolidated basis:

 
| ** **                                                     | ** ** | **Year Ended**   | ** ** |
|----------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                     | ** ** | **February 28,** | ** ** | **February 29,** | ** ** | **February 28,** | ** ** |
| **(In thousands)**                                        | ** ** | **2013**              | ** ** | **2012** | ** ** | **2011** | ** ** |
|                                                           |       |                  |       |   |   |   |   |
| Revenue                                                        |       | $                     | 677,090    |   | $ | 705,934 |   | $ | 725,399 |   |
| Cost of revenue (exclusive of items shown   separately below)  |       | 557,503               |       | 575,486 |   | 578,611 |   |
| Depreciation, depletion and amortization                       |       | 50,942                |       | 51,674 |   | 45,917 |   |
| Intangible asset impairment                                    |       | 4,704                 |       | 1,100 |   | — |   |
| Pension and profit sharing                                     |       | 8,325                 |       | 7,622 |   | 8,907 |   |
| Selling, administrative and general expenses                   |       | 77,138                |       | 64,511 |   | 61,547 |   |
| Loss (gain) on disposals of property, equipment   and software |       | 323                   |       | 808 |   | (600 | ) |
| Operating (loss) income                                        |       | (21,845               | )          | 4,733 |   | 31,017 |   |
| Interest income                                                |       | 140                   |       | 343 |   | 318 |   |
| Interest expense                                               |       | (75,987               | )          | (46,902 | ) | (41,586 | ) |
| Loss before income taxes                                       |       | (97,692               | )          | (41,826 | ) | (10,251 | ) |
| Income tax benefit                                             |       | (41,558               | )          | (16,397 | ) | (4,478 | ) |
| Net loss                                                       |       | $                     | (56,134    | ) | $ | (25,429 | ) | $ | (5,773 | ) |

 

The tables below disclose revenue and operating data for our reportable segments on a gross basis. We include inter-segment and certain intra-segment sales in our comparative analysis of revenue at the product line level and this presentation is consistent with the basis on which we review results of operations.  Revenue and operating income exclude inter-segment sales and delivery revenues and costs.  We also operate ancillary port operations and certain rental operations, which are included in our other non-core business operations line items presented below. All non-allocated operating costs are reflected in the corporate and unallocated line item presented below.

 

The Company’s segment revenue presentation for fiscal years 2012 and 2011 has been revised to conform to certain revisions, which resulted in decreases to heavy/highway construction revenue and eliminations of $29.8 million and $30.8

 

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million for fiscal years 2012 and 2011, respectively.  These revisions were made to align with the current management approach related to this segment.

 
| ** **                            | ** ** | **Year Ended**   | ** ** |
|---------------------------------------|------------|-----------------------|------------|
| ** **                            | ** ** | **February 28,** | ** ** | **February 29,** | ** ** | **February 28,** | ** ** |
| **(In thousands)**               | ** ** | **2013**              | ** ** | **2012** | ** ** | **2011** | ** ** |
|                                  |       |                  |       |   |   |   |   |
| **Revenue**                           |       |                  |       |   |   |   |   |
| Construction materials                |       | $                     | 505,026    |   | $ | 529,838 |   | $ | 512,143 |   |
| Heavy/highway construction            |       | 248,188               |       | 268,160 |   | 306,795 |   |
| Traffic safety services and equipment |       | 84,463                |       | 82,929 |   | 78,181 |   |
| Other revenues                        |       | 15,264                |       | 15,592 |   | 15,220 |   |
| Segment totals                        |       | 852,941               |       | 896,519 |   | 912,339 |   |
| Eliminations                          |       | (175,851              | )          | (190,585 | ) | (186,940 | ) |
| Total revenue                         |       | $                     | 677,090    |   | $ | 705,934 |   | $ | 725,399 |   |

 

The following tables summarize the percentage of revenue and operating income (loss) by our primary lines of business:

 
| ** **                            | ** ** | **Year Ended**   | ** ** |
|---------------------------------------|------------|-----------------------|------------|
| ** **                            | ** ** | **February 28,** | ** ** | **February 29,** | ** ** | **February 28,** | ** ** |
| ** **                            | ** ** | **2013**              | ** ** | **2012** | ** ** | **2011** | ** ** |
| **Revenue:**                          |       |                  |       |   |   |   |   |
| Construction materials                |       | 59.2                  | %          | 59.1 | % | 56.1 | % |
| Heavy/highway construction            |       | 29.1                  | %          | 29.9 | % | 33.6 | % |
| Traffic safety services and equipment |       | 9.9                   | %          | 9.3 | % | 8.6 | % |
| Other revenues                        |       | 1.8                   | %          | 1.7 | % | 1.7 | % |
| Segment totals                        |       | 100.0                 | %          | 100.0 | % | 100.0 | % |

 
| ** **                            | ** ** | **Year Ended**   | ** ** |
|---------------------------------------|------------|-----------------------|------------|
| ** **                            | ** ** | **February 28,** | ** ** | **February 29,** | ** ** | **February 28,** | ** ** |
| **(In thousands)**               | ** ** | **2013**              | ** ** | **2012** | ** ** | **2011** | ** ** |
|                                  |       |                  |       |   |   |   |   |
| **Operating (loss) income:**          |       |                  |       |   |   |   |   |
| Construction materials                |       | $                     | 27,567     |   | $ | 36,192 |   | $ | 36,108 |   |
| Heavy/highway construction            |       | (6,800                | )          | (5,103 | ) | 6,454 |   |
| Traffic safety services and equipment |       | (5,769                | )          | (209 | ) | 3,377 |   |
| Other non-core business operations    |       | 747                   |       | 674 |   | 2,811 |   |
| Segment totals                        |       | 15,745                |       | 31,554 |   | 48,750 |   |
| Corporate and unallocated             |       | (37,590               | )          | (26,821 | ) | (17,733 | ) |
| Total operating (loss) income         |       | $                     | (21,845    | ) | $ | 4,733 |   | $ | 31,017 |   |

 

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**Fiscal Year 2013 Compared to Fiscal Year 2012**

 

***Revenue***

 

Revenue for our construction materials business decreased $24.8 million, or 4.7%, to $505.0 million for fiscal year 2013 compared to $529.8 million for fiscal year 2012. The decrease in revenue in our construction materials business was primarily attributable to decreased sales of aggregates, hot mix asphalt, and precast/prestressed structural concrete in the amount of $13.4  million, $5.2 million and $4.2 million, respectively. Sales volumes of aggregates decreased 6.9% to 16.7 million tons shipped and consumed while the average price per ton shipped and consumed remained consistent for fiscal year 2013. The decrease in volumes of aggregates shipped and consumed was attributable to an 8.4% decrease in external sales volumes and a 5.2% decrease in internal sales volumes. Sales volumes of hot mix asphalt decreased 3.8% to 3.6 million tons shipped and consumed, offset by an increase in the average price per ton shipped and consumed of 1.2% to $54.70  Sales volumes of precast/prestressed structural concrete products decreased 40.9% offset by an increase in the average price per ton shipped and consumed of 45.8% for fiscal year 2013. The price and demand for our materials is largely based upon local markets and varies across the Company.  The table below represents sales volumes and average prices of our primary products (units in thousands):

 
| ** **                         | ** ** | **2013**                        | ** ** | **2012**                     | ** ** |
|------------------------------------|------------|---------------------------------|------------|------------------------------|------------|
| ** **                         | ** ** | **Construction materials** | ** ** |
| ** **                         | ** ** | **Units**                       | ** ** | **Price per unit** | ** ** | **% Sales*** | ** ** | **Units** | ** ** | **Price per unit** | ** ** | **% Sales*** | ** ** |
| **Units Shipped and Consumed:**    |       |                            |       |                         |       |   |   |   |   |   |   |   |   |
| Stone, sand and gravel (tons)      |       | 16,726                          |       | $                            | 11.30      |   | 37 | % | 17,972 |   | $ | 11.27 |   | 38 | % |
| Hot mix asphalt (tons)             |       | 3,592                           |       | $                            | 54.70      |   | 39 | % | 3,734 |   | $ | 54.03 |   | 38 | % |
| Ready mixed concrete (cubic yards) |       | 539                             |       | $                            | 116.43     |   | 12 | % | 550 |   | $ | 113.66 |   | 12 | % |

 

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* Remaining percentage of sales are from precast/prestressed structural concrete, block and construction supplies.

 

The market for construction materials is soft with strong competition. One key factor for the reduced sales volumes is the decreased activity of the Marcellus Gas project in fiscal year 2013 when compared to fiscal year 2012. The chart below summarizes the impact of increased competition and soft market conditions on our sales volumes:

 
| ** **                | ** ** | **Change in volume** | ** ** |
|---------------------------|------------|--------------------------------|------------|
| ** **                | ** ** | **February 28,   2013**   | ** ** | **February 29,   2012** | ** ** | **February 28,   2011** | ** ** |
| Aggregates           |       | -6.9                           | %          | 3.3 | % | 4.7 | % |
| Hot mix Asphalt      |       | -3.8                           | %          | -7.3 | % | -3.4 | % |
| Ready mix concrete   |       | -2.1                           | %          | -2.8 | % | 7.6 | % |

 

Revenue for our heavy/highway construction business decreased $20.0 million, or 7.5%, to $248.2 million for fiscal year 2013 compared to $268.2 million for fiscal year 2012.  We continue to experience strong competition in the public and commercial markets.  The majority of our sales are government related projects. As a result, we are directly impacted as government funding is reduced for transportation spending. The majority of the revenue decrease is related to reduced project activity, including from the Marcellus Gas project, Kokosing/I-81 and PennDOT.  Further, we believe that the lack of a federal multi-year surface transportation bill over the past several construction seasons has caused the number of larger, heavy, multidiscipline, multiyear highway and bridge construction projects to decrease in favor of smaller, shorter jobs such as road resurfacing and bridge replacement and rehabilitation.

 

Revenue for our traffic safety services and equipment sales businesses increased $1.6 million, or 1.9%, to $84.5 million for fiscal year 2013 compared to $82.9 million for fiscal year 2012. The increase was the result of an increase in highway safety equipment revenue, which was offset by a decrease in rental activity. The increase in revenue for fiscal year 2013 compared to fiscal year 2012 can be attributed primarily to continued benefits of previously introduced product offerings.  Included in traffic safety service and equipment revenue for fiscal year 2012 is a refund of excess taxes of approximately $1.1 million. Overall rental service activity decreased for fiscal year 2013 compared to fiscal year 2012 primarily as the result of decline in transportation and infrastructure spending in our rental service regions.

 

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***Cost of Revenue***

 

Cost of revenue decreased $18.0 million, or 3.1%, to $557.5 million for fiscal year 2013 compared to $575.5 million for fiscal year 2012. Cost of revenue as a percentage of revenue increased to 82.3% for fiscal year 2013 from 81.5% in fiscal year 2012.  The decrease in dollar cost of revenue for fiscal year 2013 was attributable primarily to lower revenue in the current fiscal year. The increase in cost of revenue as a percentage of revenue was due to reduced profitability in all three of our businesses.

 
| ** **                                   | ** ** | **For Year Ended** | ** ** |
|----------------------------------------------|------------|------------------------------|------------|
| ** **                                   | ** ** | **February 28,**        | ** ** | **February 29,** | ** ** |
| **(In thousands)**                      | ** ** | **2013**                     | ** ** | **2012** | ** ** |
|                                         |       |                         |       |   |   |
| **Gross   Cost of Revenue**             |       |                         |       |   |   |
| Construction materials                  |       | $                            | 409,332    |   | $ | 426,831 |   |
| Heavy/highway construction              |       | 240,237                      |       | 260,749 |   |
| Traffic safety services and equipment   |       | 71,249                       |       | 67,761 |   |
| Other non-core business operations      |       | 12,536                       |       | 10,730 |   |
| Segment totals                          |       | 733,354                      |       | 766,071 |   |
| Eliminations                            |       | (175,851                     | )          | (190,585 | ) |
| Total cost of revenue                   |       | $                            | 557,503    |   | $ | 575,486 |   |

 
| ** **                                                             | ** ** | **For Year Ended** | ** ** |
|------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                             | ** ** | **February 28,**        | ** ** | **February 29,** | ** ** |
| ** **                                                             | ** ** | **2013**                     | ** ** | **2012** | ** ** |
| **Segment   Gross Cost of Revenue as Percent of Gross Revenue**   |       |                         |       |   |   |
| Construction materials                                            |       | 81.1                         | %          | 80.6 | % |
| Heavy/highway construction                                        |       | 96.8                         | %          | 97.2 | % |
| Traffic safety services and equipment                             |       | 84.4                         | %          | 81.7 | % |
| Other non-core business operations                                |       | 82.1                         | %          | 68.8 | % |

 

Gross cost of revenue for our construction materials business as a percentage of its gross revenue was up 0.5% to 81.1% for the fiscal year ended February 28, 2013 compared to 80.6% for the fiscal year ended February 29, 2012. With the lower sales volume, management reduced production as to not build inventory. The lower production levels did not, however, cover fixed costs and increased mainly in transportation, causing the cost of revenue as a percentage of gross revenue to increase. Some quarries increased production, but lower margins contributed to such increase.

 

Gross cost of revenue for our heavy/highway construction business as a percentage of its gross revenue was down 0.4% to 96.8% for the fiscal year ended February 28, 2013 compared to 97.2% for the fiscal year ended February 29, 2012. The margins improved due to reduced spending incremental to normal reductions based on the decrease of activity.

 

Gross cost of revenue for our traffic services and equipment business as a percentage of its gross revenue was up 2.6% to 84.4% for the fiscal year ended February 28, 2013 compared to 81.7% for the fiscal year ended February 29, 2012. The primary driver was increased costs; mainly transportation, repairs, insurance, tools and rental, partially offset by decreased bonus payments.

 

***Depreciation, Depletion and Amortization***

 

Depreciation, depletion and amortization decreased $0.8 million, or 1.5% to $50.9 million for fiscal year 2013 compared to $51.7 million for fiscal year 2012. Depreciation expense recognized on capitalized asset retirement costs associated with a change in the timing and amount of our mining reclamation costs decreased approximately $1.4 million which was offset by increased amortization expense during fiscal year 2013 of approximately $0.9 million related to our capitalized software.

 

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***Intangible Asset Impairment***

 

Intangible asset impairment increased $3.6 million to $4.7 million during fiscal year 2013 compared to $1.1 million in fiscal year 2012. In fiscal year 2013, we recorded trademark impairments of $2.0 million related to our Traffic Safety Services and Equipment reporting unit and $2.7 million related to our Construction Materials reporting unit primarily due to declining revenue in those reporting units.

 

***Pension and Profit Sharing***

 

Pension and profit sharing expense increased $0.7 million, or 9.2%, to $8.3 million during fiscal year 2013 compared to $7.6 million in fiscal year 2012. The increase is attributable primarily to higher discretionary contributions to the 401k plans in part of the business, increased contributions to multi-employer pension plans, partially offset by pension reductions related to applicable regulations and fewer contractors working on government jobs.

 

***Selling, Administrative and General Expenses***

 

Selling, administrative and general expenses increased $12.6 million, or 19.5%, to $77.1 million for fiscal year 2013 compared to $64.5 million for fiscal year 2012. The increase was primarily attributable to costs associated with the remediation of our ERP system of approximately $4.3 million and higher legal and accounting fees of $7.1 million.  The increase in legal and accounting fees was directly related to resources needed to comply with our financial reporting responsibilities while continuing to support the efforts of the ERP remediation.

 

***Operating (Loss) Income***

 

Operating income for our construction materials business decreased $8.6 million, or 23.8%, to $27.6 million for fiscal year 2013 compared to $36.2 million for fiscal year 2012. Operating profit as a percentage of revenue for our construction materials business was 5.5% for fiscal year 2013 compared to 6.8% for fiscal year 2012. Operating income related to the sale of aggregates decreased $4.9 million, or 25.8%, to $14.1 million for fiscal year 2013 compared to $19.0 million for fiscal year 2012. The decrease was attributable primarily to decreased sales volumes without a commensurate reduction in operating costs. Additionally, variations in internal and external sales mix can cause changes in profitability period over period. Operating income related to our ready mixed concrete products for fiscal year 2013 decreased $1.0 million to operating income of $1.3 million compared to $2.3 million for fiscal year 2012. The decline in operating performance in fiscal year 2013 compared to fiscal year 2012 for our ready mixed concrete products is primarily attributable to volume reductions and higher costs related to transportation and repairs, which was partially offset by improved prices. The overall decrease in operating profit was offset by a $1.8 million increase in hot mix asphalt operating profit. Hot mix asphalt profit increased 11.9% to $16.9 million for fiscal year 2013 as compared to $15.1 million for fiscal year 2012. The improvement in hot mix asphalt profit is attributed to higher selling prices, while maintaining consistent operating costs, primarily those for liquid asphalt.  Contributing to the decrease in operating income was a $2.7 million impairment charge on our indefinite lived intangible asset.

 

Operating loss for our heavy/highway construction business increased $1.7 million to $6.8 million for fiscal year 2013 compared to $5.1 million for fiscal year 2012.  Operating loss as a percentage of revenue for the heavy/highway construction business was an operating loss of 2.7% for fiscal year 2013 compared to an operating loss of 1.9% for fiscal year 2012. Our multiyear jobs from 2009 and 2010 wrapped-up in fiscal year 2013 and we filled capacity with additional, albeit shorter projects such as road resurfacing and bridge replacement and rehabilitation.  These types of projects have lower margins and we have experienced greater competition than with the larger, heavy, multidisciplinary, multiyear highway and bridge construction projects. The extensive competition we are currently experiencing is the result of a continual increase in the number of residential and commercial contractors bidding on public sector projects, resulting in continuing low margins on projects as these contractors tend to bid at or below our historic bid levels. If we are unable to maintain our market share and continue to be aggressive in our bidding to maintain our market share, profitability may be negatively impacted in future periods.

 

Operating loss for our traffic safety services and equipment sales businesses increased $5.6 million to an operating loss of $5.8 million during fiscal year 2013 compared to an operating loss of $0.2 million during fiscal year 2012. Operating loss as a percentage of revenue for traffic safety services and equipment was 6.9% for fiscal year 2013 compared to an operating loss of 0.2% for fiscal year 2012.  The decrease in profitability was attributable primarily to declining rental service revenue, as well as $2.0 million of impairment charges related to our intangible assets. Additionally, fiscal year 2012 reflects a $1.1 million refund from a state use tax audit. The use tax settlement resulted in a refund of taxes remitted to the Commonwealth of Pennsylvania by the Company. Overall profit from rental service activity decreased as we experienced an overall decrease in transportation and infrastructure spending in our rental service regions.

 

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***Interest Expense***

 

Interest expense increased $29.1 million, or 62.0%, to $76.0 million for fiscal year 2013 compared to $46.9 million for fiscal year 2012.  This increase is primarily attributable to the increase in our net effective interest rate as a result of our Secured Notes outstanding for most of fiscal year 2013 as well as an overall increase in the average debt outstanding for fiscal year 2013 as compared to fiscal year 2012.  Interest expense for fiscal year 2013 also included the write off of $6.4 million of unamortized deferred debt issuance costs related to the debt repaid on March 15, 2012.

 

***Income Tax Benefit***

 

During fiscal year 2013, we recorded $41.6 million of income tax benefit, which resulted in an annual effective rate of 42.5%. The benefit consists of a $35.9 million federal tax benefit and a $5.7 million state tax benefit. Our annual effective tax rate differs from the U.S. federal statutory rate of 35% primarily due to the current year state income taxes, permanent differences, most significantly percentage depletion and an increase in the valuation allowance on deferred tax assets. Included in the fiscal year 2013 state tax benefit is a discrete out-of-period tax benefit of $1.2 million due to differences in our state apportionment calculation when we finalized our tax returns for fiscal year 2012 in November 2012.  Also included in the fiscal year 2013 deferred federal and state tax benefit, net of federal benefit amounts,  is a $0.5 million of expense related to the tax treatment of certain leases.  The Company understated the deferred tax liability in prior periods by $1.1 million. The out-of-period adjustments are not material to the prior or current consolidated financial statements.

 

During fiscal year 2012, we recorded $16.4 million of income tax benefit, which resulted in an annual effective rate of 39.2%. The benefit consists of a $17.6 million federal tax benefit offset by $1.2 million of state income tax expense. Our annual effective tax rate differs from the U.S. federal statutory rate of 35% primarily due to the current year state income taxes, permanent differences, most significantly percentage depletion and an increase in the valuation allowance on deferred tax assets.

 

Our future effective tax rate may be materially impacted by the timing and extent of the realization of deferred tax assets and changes in the tax laws. Further, our effective tax rate may fluctuate within a fiscal year, including from quarter-to-quarter, due to items arising from discrete events, including the resolution or identification of tax uncertainties, or due to the changes in the valuation allowance.

 

**Fiscal Year 2012 Compared to Fiscal Year 2011**

 

***Revenue***

 

Revenue for our construction materials business increased $17.7 million, or 3.5%, to $529.8 million for fiscal year 2012 compared to $512.1 million for fiscal year 2011. The increase in revenue in our construction materials business was primarily attributable to the increase in sales of aggregates, hot mix asphalt, and precast/prestressed structural concrete in the amount of $10.4 million, $5.5 million and $3.3 million, respectively. Sales volumes of aggregates increased 3.3% to 18.0 million tons shipped and consumed while the average price per ton shipped and consumed increased 1.8% to $11.27 for fiscal year 2012. The increase in volumes of aggregates shipped and consumed was attributable to a 6.9% increase in external sales volumes, due to activity related to the Marcellus Gas project which was offset by a 3.8% decrease in internal sales volumes. Sales volumes of hot mix asphalt decreased 7.3% to 3.7 million tons shipped and consumed, offset by an increase in the average price per ton shipped and consumed of 10.9% to $54.03.  Sales volumes of precast/prestressed structural concrete products increased 18.1% to 0.07 million tons shipped and consumed, offset by a decrease in the average price per ton shipped and consumed of 5.0% to $460.14 for fiscal year 2012. The increase in volume is due to activity on some larger projects, including some schools. 

 

The price and demand for our materials is largely based upon local markets and varies across the Company.  The table below represents sales volumes and average prices of our primary products (units in thousands):

 
| ** **                         | ** ** | **2012**                        | ** ** | **2011**                     | ** ** |
|------------------------------------|------------|---------------------------------|------------|------------------------------|------------|
| ** **                         | ** ** | **Construction materials** | ** ** |
| ** **                         | ** ** | **Units**                       | ** ** | **Price per unit** | ** ** | **% Sales*** | ** ** | **Units** | ** ** | **Price per unit** | ** ** | **% Sales*** | ** ** |
| **Units Shipped and Consumed:**    |       |                            |       |                         |       |   |   |   |   |   |   |   |   |
| Stone, sand and gravel (tons)      |       | 17,972                          |       | $                            | 11.27      |   | 38 | % | 17,401 |   | $ | 11.07 |   | 38 | % |
| Hot mix asphalt (tons)             |       | 3,734                           |       | $                            | 54.03      |   | 38 | % | 4,026 |   | $ | 48.74 |   | 38 | % |
| Ready mixed concrete (cubic yards) |       | 550                             |       | $                            | 113.66     |   | 12 | % | 566 |   | $ | 112.12 |   | 12 | % |

 

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* Remaining percentage of sales are from precast/prestressed structural concrete, block and  construction supplies.

 

Revenue for our heavy/highway construction business decreased $38.6 million, or 12.6%, to $268.2 million for fiscal year 2012 compared to $306.8 million for fiscal year 2011. The decrease was attributable to the overall decrease in highway and infrastructure spending at the federal, state and local levels, which we anticipate to continue into fiscal year 2013.  Further, we believe that the lack of a federal multi-year surface transportation bill over the past several construction seasons, has caused the number of larger, heavy, multidisciplinary, multiyear highway and bridge construction projects to decrease in favor of smaller, shorter jobs such as road resurfacing and bridge replacement and rehabilitation. This change in the mix of infrastructure spending has resulted in a reduced number of larger, heavy, multidisciplinary, multiyear highway and bridge construction projects in our backlog.

 

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Revenue for our traffic safety services and equipment sales businesses increased $4.7 million, or 6.0%, to $82.9 million for fiscal year 2012 compared to $78.2 million for fiscal year 2011. The increase was the result of an increase in highway safety equipment revenue, which was offset by a decrease in rental activity. The increase in revenue for fiscal year 2012 compared to fiscal year 2011 can be attributed primarily to a recent enhancement of our product offerings of trailer products and a redesigned barrel product which has allowed us to enter the market at varying price points. Included in traffic safety service and equipment revenue is a refund of excess taxes previously recorded as a reduction of revenue of approximately $1.1 million remitted to the Commonwealth of Pennsylvania by the Company. Overall rental service activity decreased for fiscal year 2012 compared to fiscal year 2011 primarily as the result of the conclusion of three large service jobs that were completed during fiscal year 2011 and the decline in transportation and infrastructure spending in our rental service regions.

 

***Cost of Revenue***

 

Cost of revenue decreased $3.1 million, or 0.5%, to $575.5 million for fiscal year 2012 compared to $578.6 million for fiscal year 2011. Cost of revenue as a percentage of revenue increased to 81.5% for fiscal year 2012 from 79.8% in fiscal year 2011.  The decrease in dollar cost of revenue for fiscal year 2012 was attributable primarily to lower revenue in the current fiscal year. The increase in cost of revenue as a percentage of revenue was attributable primarily to our heavy/highway construction business.  The heavy/highway construction business experienced an overall decrease in the amount of work available during the current fiscal year. Our multiyear jobs from 2009 and 2010 wrapped-up and were filled with additional, albeit shorter projects such as road resurfacing and bridge replacement and rehabilitation. Additionally, the heavy/highway business experienced a loss contract for one job due to unanticipated site conditions for approximately $1.0 million.

 
| ** **                                   | ** ** | **For Year Ended** | ** ** |
|----------------------------------------------|------------|------------------------------|------------|
| ** **                                   | ** ** | **Feb 29,**             | ** ** | **Feb 28,** | ** ** |
| **(In thousands)**                      | ** ** | **2012**                     | ** ** | **2011** | ** ** |
|                                         |       |                         |       |   |   |
| **Gross   Cost of Revenue**             |       |                         |       |   |   |
| Construction materials                  |       | $                            | 426,831    |   | $ | 410,130 |   |
| Heavy/highway construction              |       | 260,749                      |       | 287,214 |   |
| Traffic safety services and equipment   |       | 67,761                       |       | 59,395 |   |
| Other non-core business operations      |       | 10,730                       |       | 8,812 |   |
| Segment totals                          |       | 766,071                      |       | 765,551 |   |
| Eliminations                            |       | (190,585                     | )          | (186,940 | ) |
| Total cost of revenue                   |       | $                            | 575,486    |   | $ | 578,611 |   |

 
| ** **                                                             | ** ** | **For Year Ended** | ** ** |
|------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                             | ** ** | **Feb 29,**             | ** ** | **Feb 28,** | ** ** |
| ** **                                                             | ** ** | **2012**                     | ** ** | **2011** | ** ** |
| ** **                                                             | ** ** | ** **                   | ** ** |  | ** ** |
| **Segment   Gross Cost of Revenue as Percent of Gross Revenue**   |       |                         |       |   |   |
| Construction materials                                            |       | 80.6                         | %          | 80.1 | % |
| Heavy/highway construction                                        |       | 97.2                         | %          | 93.6 | % |
| Traffic safety services and equipment                             |       | 81.7                         | %          | 76.0 | % |
| Other non-core business operations                                |       | 68.8                         | %          | 57.9 | % |

 

Gross cost of revenue for our construction materials business as a percentage of its gross revenue was up 0.5% to 80.6% for the fiscal year ended February 29, 2012 compared to 80.1% for the fiscal year ended February 28, 2011. The primary driver was increased material costs.

 

Gross cost of revenue for our heavy/highway construction business as a percentage of its gross revenue was up 3.6% to 97.2% for fiscal year ended February 29, 2012 compared to 93.6% for the fiscal year ended February 28, 2011. The margins deteriorated due to increased spending in transportation, equipment rental and tools, which was slightly offset by reduced subcontractor fees.

 

Gross cost of revenue for our traffic services and equipment business as a percentage of its gross revenue was up 5.7% to 81.7% for the fiscal year ended February 29, 2012 compared to 76.0% for the fiscal year ended February 28, 2011. Costs increased in many areas, including pallets, transportation, equipment rental, supplies and labor, which was partially offset by slight reduction in bonus.

 

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***Depreciation, Depletion and Amortization***

 

Depreciation, depletion and amortization increased $5.8 million, or 12.6% to $51.7 million for fiscal year 2012 compared to $45.9 million for fiscal year 2011. We placed $35.4 million of new assets in use in fiscal year 2012 compared to $31.8 million in fiscal year 2011 accounting for approximately $1.8 million of the increase. The remaining increase was attributable to depreciation expense recognized on capitalized asset retirements costs associated with a change in the timing and amount of our mining reclamation activities.

 

***Intangible Asset Impairment***

 

Intangible asset impairment increased $1.1 million during fiscal year 2012 compared to fiscal year 2011. In fiscal year 2012, we recorded a trademark impairment of $1.1 million related to our Traffic Safety Services and Equipment reporting primarily due to declining revenue.

 

***Pension and Profit Sharing***

 

Pension and profit sharing expense decreased $1.3 million, or 14.6%, to $7.6 million during fiscal year 2012 compared to $8.9 million in fiscal year 2011. The decrease is attributable primarily to an overall reduction of our work force as well as overall lower operating performance which decreased the amount of our contribution to certain benefit programs.

 

***Selling, Administrative, and General Expenses***

 

Selling, administrative and general expenses increased $3.0 million, or 4.9%, to $64.5 million for fiscal year 2012 compared to $61.5 million for fiscal year 2011. The increase for fiscal year 2012 compared to fiscal year 2011 is attributable primarily to $2.1 million in Hire Tax Credits in fiscal year 2011 that reduced prior fiscal year and which were not received in fiscal year 2012. The remaining increase is primarily attributable to an increase in the allowance for doubtful accounts of approximately $0.8 million and increased public company compliance and ERP costs of approximately $1.7 million which were offset by a decrease in administrative and general costs for fiscal year 2012 compared to fiscal year 2011.

 

***Operating Income***

 

Operating income for our construction materials business increased $0.1 million, or 0.3%, to $36.2 million for fiscal year 2012 compared to $36.1 million for fiscal year 2011. Operating income as a percentage of revenue for our construction materials business was 6.8% for fiscal year 2012 compared to 7.0% for fiscal year 2011. Income related to the sale of aggregates decreased $0.4 million, or 2.1%, to $19.0 million for fiscal year 2012 compared to $19.4 million for fiscal year 2011. The decrease was attributable primarily to increased depreciation expense of approximately $4.0 million related to the timing of mine reclamation activities offset by an increase in outside sales, including increased fourth quarter sales, due to the open winter as well as a favorable sales mix. Variations in internal and external sales mix can cause changes in profitability period over period. Operating loss related to our precast/prestressed concrete products for fiscal year 2012 decreased $2.5 million to an operating loss of $0.7 million compared to an operating loss of $3.2 million for fiscal year 2011. The improved operating performance in fiscal year 2012 compared to fiscal year 2011 for our precast/prestressed concrete products is primarily attributable to improved selling margins in the overall markets in which we operate and to a lesser extent a more beneficial product mix as we are producing and selling larger beams which typically carry higher overall margins than the smaller beams and other commercial work that we completed in the prior year. The overall increase in operating income was offset by a $3.4 million decrease in hot mix asphalt operating profit. Hot mix asphalt profit decreased 18.4% to $15.1 million for fiscal year 2012 as compared to $18.5 million for fiscal year 2011. The decline in hot mix asphalt profit is attributed to decreased sales volume and increased material costs, primarily those for liquid asphalt.

 

Operating profit for our heavy/highway construction business decreased $11.6 million to an operating loss of $5.1 million for fiscal year 2012 compared to operating income of $6.5 million for fiscal year 2011.  Operating loss as a percentage of revenue for the heavy/highway construction business was 1.9% for fiscal year 2012 compared to an operating income of 2.1% for fiscal year 2011. Our multiyear jobs from 2009 and 2010 completed and were filled with additional, albeit shorter projects such as road resurfacing and bridge

 

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replacement and rehabilitation.  These types of projects have lower margins and we have experienced greater competition than with the larger, heavy, multidisciplinary, multiyear highway and bridge construction projects. The extensive competition we are currently experiencing is the result of a continual increase in the number of residential and commercial contractors bidding on public sector projects, resulting in continuing low margins on projects as these contractors tend to bid at or below our historic bid levels. If we are unable to maintain our market share and continue to be aggressive in our bidding to maintain our market share, profitability may be negatively impacted in future periods. The heavy/highway construction business also experienced a loss contract for one job due to unanticipated site conditions for approximately $1.0 million.

 

Operating profit for our traffic safety services and equipment sales businesses decreased $3.6 million to an operating loss of $0.2 million during fiscal year 2012 compared operating income of $3.4 million during fiscal year 2011. Operating loss as a percentage of revenue for traffic safety services and equipment was 0.2% for fiscal year 2012 compared to operating income of 4.3% for fiscal year 2011.  The decrease in profitability was attributable primarily to a $1.7 million decrease in profit as the result of declining rental service revenue, $0.7 million in increased healthcare costs, $0.5 million increase in bonus expense and the impairment of an indefinite lived trademark for $1.1 million, offset by a $1.1 million refund from a state use tax audit. The use tax settlement resulted in a refund of taxes remitted to the Commonwealth of Pennsylvania by the Company. Overall profit from rental service activity decreased as we concluded three large high margin service jobs in the prior year and we experienced an overall decrease in transportation and infrastructure spending in our rental service regions.

 

***Interest Expense***

 

Interest expense increased $5.3 million, or 12.7%, to $46.9 million for fiscal year 2012 compared to $41.6 million for fiscal year 2011.  This increase is primarily attributable to the increase in our net effective interest rate as a result of our Notes being outstanding for a full year as well as an overall increase in the average debt outstanding for fiscal year 2012 as compared to fiscal year 2011.

 

***Income Tax Benefit***

 

During fiscal year 2012, we recorded $16.4 million of income tax benefit, which resulted in an annual effective rate of 39.2%. The benefit consists of a $17.6 million federal tax benefit offset by $1.2 million of state income tax expense. Our annual effective tax rate differs from the U.S. federal statutory rate of 35% primarily due to the current year state income taxes, permanent differences, most significantly percentage depletion and an increase in valuation allowance on deferred tax assets.

 

Our effective tax rate for the year ended February 28, 2011 resulted in a benefit of 43.7%. Our effective tax rate differs from the U.S. federal statutory rate of 35% primarily due to the establishment of the valuation allowance on certain federal and state deferred tax assets, state income taxes and permanent differences, primarily percentage depletion. The benefit from income taxes for the year ended February 28, 2011 consisted of a $4.8 million federal income tax benefit, partially offset by $0.3 million of state income tax expense.

 

Our future effective tax rate may be materially impacted by the timing and extent of the realization of deferred tax assets and changes in the tax laws. Further, our effective tax rate may fluctuate within a fiscal year, including from quarter-to-quarter, due to items arising from discrete events, including the resolution or identification of tax uncertainties, or due to the changes in the valuation allowance.

 

**Liquidity and Capital Resources**

 

Our sources of liquidity include cash and cash equivalents, cash from operations and amounts available for borrowing under our ABL Facility with Manufacturers and Traders Trust Company (“M&T”).  As of February 28, 2013, we had borrowed $24.3 million under the ABL Facility.  As of such date, the borrowing base was $109.7 million; provided, however, there was $84.7 million available to borrow because we were required to maintain at least $25 million of excess availability so that we do not trigger the fixed charge coverage ratio based covenant discussed in “Our Indebtedness - Asset-Based Loan Facility - Covenants”, included in this Item.  We recently amended our ABL Facility to, among other things, reduce the overall commitment to $145.0 million and provide that through November 30, 2014 we are no longer required to maintain minimum excess availability (as defined in the ABL Facility).  As of February 28, 2013, we had $9.5 million in cash and cash equivalents and working capital of $131.8 million compared to $15.0 million in cash and cash equivalents and working capital of $171.5 million as of February 29, 2012.  Given the nature and seasonality of our business, we typically experience significant fluctuations in working capital needs and balances during our peak summer season; these amounts are converted to cash over the course of our normal operating cycle.  Cash balances of $10.1 million and $10.3 million as of February 28, 2013 and February 29, 2012, respectively, were restricted in certain consolidated subsidiaries for bond sinking fund and insurance requirements, as well as collateral on outstanding letters of credit or rentals.  We maintain company owned life insurance policies with cash surrender values (“CSV”).  During fiscal year 2012 we obtained $3.0 million of cash in the form of a loan against the $4.0 million of CSV which was used for general corporate needs and working capital purposes. This amount was subsequently repaid in fiscal year 2013, however we plan to draw against the CSV in fiscal year 2014.

 

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*Asset Based Loan Facility*

 

Original Terms

 

On March 15, 2012, the Company entered into the ABL Facility with M&T, as the issuing bank, a lender, the swing lender, the agent and the arranger. The ABL Facility originally provided for maximum borrowings on a revolving basis of up to $170.0 million from time to time for general corporate purposes, including working capital. As discussed below, as a result of the third amendment to the ABL Facility, a maximum of $145.0 million may be borrowed under the ABL Facility. The ABL Facility includes a $15.0 million letter of credit sub-facility and a $20.0 million swing line sub-facility for short-term borrowings. The ABL Facility will mature on March 15, 2017. We classify borrowings under the ABL Facility as long-term due to our ability to maintain such borrowings on a long-term basis.

 

Borrowings under the ABL Facility (except swing line loans) bear interest at a rate per annum equal to, at the Company’s option, either (a) a base rate or (b) a LIBOR rate, in each case plus an applicable margin. Swing line loans bear interest at the base rate plus the applicable margin. The LIBOR margin for the ABL Facility is fixed at 5.00% (as of the date of the third amendment, discussed below) and the base rate margin is fixed at 3.00% (as of the date of the third amendment, discussed below). The ABL Facility also contains a commitment fee that is tied to the quarterly average Excess Availability, as defined in the ABL Facility Agreement as the borrowing base less the sum of letter of credit obligations and outstanding loans thereunder. The commitment fee ranges from 0.25% to 0.625%. From the commencement of the ABL Facility Agreement until September 7, 2012 (date of the first amendment, discussed below), the LIBOR margin was 2.75%, the base rate margin was 0.75% and the commitment fee was 0.50%.

 

Borrowings under the ABL Facility are guaranteed on a full and unconditional and joint and several basis by certain of the Company’s existing and future domestic subsidiaries and are secured, subject to certain permitted liens, by first-priority liens on the ABL Priority Collateral and by second-priority liens on the collateral securing the Secured Notes on a first-priority basis, except for certain real property.

 

Availability of ABL Facility and Covenant

 

The ABL Facility includes affirmative and negative covenants that, subject to significant exceptions, limit our ability and the ability of our guarantors to undertake certain actions, including, among other things, limitations on (i) the incurrence of indebtedness and liens, (ii) asset sales, (iii) dividends and other payments with respect to capital stock, (iv) acquisitions, investments and loans, (v) affiliate transactions, (vi) altering the business, (vii) issuances of equity that have mandatory redemption or put rights prior to the maturity of the ABL Facility and (viii) providing negative pledges to third parties. As of February 28, 2013, the Company was in compliance with these affirmative and negative covenants.

 

Prior to the third amendment to the ABL Facility, if the Company had less than $25.0 million of availability under the ABL Facility at any point in time, it would be obligated to comply with a fixed charge coverage ratio. The third amendment to the ABL Facility, among other things, reduced the minimum excess availability threshold for the fixed charge coverage ratio until November 30, 2014, effectively increasing the Company’s short-term borrowing availability by allowing it to borrow up to the entire amount of the ABL Facility without needing to comply with a fixed charge coverage ratio.

 

If at any time after November 30, 2014 Excess Availability is less than the greater of (i) $25.0 million or (ii) 15% of the lesser of the commitments and the borrowing base, the Company must comply with a minimum fixed charge coverage ratio test of at least 1.0 to 1.0 for the immediately preceding four fiscal quarters or twelve consecutive months, as applicable. As of February 28, 2013, the Company’s Fixed Charge Coverage Ratio was below 1.0 to 1.0. The practical result will be that after November 30, 2014, so long as our fixed charge coverage ratio as calculated pursuant to the covenant remains less than 1.0 to 1.0, our available borrowings under the ABL Facility will be reduced by $25.0 million.

 

A fixed charge covenant ratio is also used to determine what advance rates apply in calculating the borrowing base under the ABL Facility, as well as whether the Company can make certain investments, acquisitions, restricted payments, repurchases or increases in the amount of cash interest payments on other indebtedness. As part of the first amendment to the ABL Facility entered into on September 7, 2012, the borrowing base formula under the ABL Facility became subject to adjustment based on the most recent fixed charge coverage ratio. If the calculation of the fixed charge coverage ratio is less than 1.0 to 1.0, the borrowing base will be equal to the sum of (a) the lesser of (i) $56.0 million (from $65 million) and (ii) 65% (from 75%) of the appraised value of the eligible real property, plus (b) 70% (from 85%) of the outstanding balance of eligible accounts receivable plus, (c) 40% (from 60%) of eligible inventory, minus (d) reserves imposed by the agent of the ABL Facility in the exercise of reasonable business judgment from the perspective of a secured asset-based lender, minus (e) reserves imposed by the agent to the ABL Facility with respect to branded inventory in its sole discretion.

 

The applicability of the Company’s fixed charge coverage ratio is conditional upon reaching the minimum excess availability. As a result of the third amendment, the Company has a minimum excess availability of zero (reduced from $25.0 million) until November 30, 2014, effectively eliminating the need to comply with a fixed charge coverage ratio. After this date, the Company may be subject to a fixed charge coverage ratio of 1.0 to 1.0, if its minimum excess availability reaches $25.0 million.

 

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Amendment of ABL Facility

 

The ABL Facility contained a covenant that required us to deliver our fiscal year 2012 annual financial statements to the lender by May 29, 2012. On September 7, 2012, we entered into the first amendment to the ABL Facility to change the required delivery date of our audited February 29, 2012 financial statements and the required delivery date of our first and second quarter results and financial statements. Subsequent to the date of the first amendment, we required multiple extensions of time and ultimately filed our audited February 29, 2012 financial statements, our fiscal year 2013 first and second quarter results and financial statements on December 15, 2012, January 1, 2013 and February 28, 2013, respectively.

 

As part of the first amendment to the ABL Facility entered into on September 7, 2012, the borrowing base formula under the ABL Facility became subject to adjustment based on the most recent Fixed Charge Coverage Ratio as described above. We were subject to the adjusted borrowing base calculation as of February 28, 2013. The first amendment added a 1.25% floor to LIBOR for purposes of determining the interest rate applicable to LIBOR based borrowings, which was later removed in the third amendment discussed below.

 

In connection with the first amendment to the ABL Facility, we also agreed with M&T that, in the event M&T is unable to reduce its final participation in the ABL Facility to no more than $75.0 million during the primary syndication of the ABL Facility by December 15, 2012, M&T would be entitled to add or modify terms of the ABL Facility that were previously prohibited from being added or modified, including but not limited to the advance rates, certain covenants and the interest and fees payable. As of February 28, 2013, M&T has not syndicated the ABL Facility and has not modified the terms of the ABL Facility. See the discussion below concerning the potential modifications by M&T.

 

On December 7, 2012, we entered into the second amendment to the ABL Facility to change the required delivery date of our third quarter results and financial statements. Subsequent to the date of the second amendment, we required an extension of time and ultimately filed our third quarter results and financial statements on April 1, 2013. There can be no guarantee that the Company will not need to obtain similar amendments in the future. A failure to obtain such amendment could result in an acceleration of the Company’s indebtedness under the ABL Facility and a cross-default under the Company’s other indebtedness, including the Notes and Secured Notes.

 

On May 29, 2013, we entered into the third amendment to the ABL Facility. As discussed above, prior to the third amendment, if the Company had less than $25.0 million of availability under the ABL Facility at any point in time, it would be obligated to comply with a fixed charge coverage ratio. The third amendment, among other things, reduced the minimum excess availability to zero until November 30, 2014, effectively increasing the Company’s short-term borrowing availability by allowing it to borrow up to the entire amount of the ABL Facility without needing to comply with a fixed charge coverage ratio. The Company also agreed to the following additional amendments to the ABL Facility in the third amendment: (i) the aggregate overall amount available for borrowing under the ABL Facility was reduced from $170.0 million to $145.0 million; (ii) the interest rate margin added to applicable LIBOR based borrowings was increased to a fixed 5%; (iii) the interest rate margin added to applicable Base Rate borrowings was increased to a fixed 3%; (iv) the 1.25% floor applicable to LIBOR based borrowings was removed; and (v) to the extent that the Company disposes of assets that are ABL priority collateral and certain unencumbered assets, the net cash proceeds will be used to prepay outstanding borrowings under the ABL Facility and the overall ABL Facility will be reduced by $1 for each $1 of assets sold up to $15 million. The third amendment did not change other significant terms of the ABL Facility such as the maturity, borrowing base formula, and covenants, as applicable. Although the overall commitment was reduced from $170.0 million to $145.0 million, because the Company’s borrowing base was below $145.0 million at the time of the third amendment, such reduction had no impact on the Company’s short-term ability to borrow under the ABL Facility.

 

In connection with the third amendment, we also agreed with M&T that our board of directors would create a special committee consisting of our four non-employee directors, which we refer to as the special committee, that has engaged an advisor to develop a business plan that focuses on cost reductions and operational efficiencies, which we refer to as the Plan. Under the terms of the third amendment, the Plan must be reasonably acceptable in scope, timing and process to M&T.  On July 18, 2013, the Plan was unanimously approved by the members of the special committee and by our entire board of directors, which authorized the special committee to oversee the implementation of the Plan by management.  On July 19, 2013 the plan was submitted to M&T for its review and on August 15, 2013, M&T informed the Company that the Plan is not acceptable in scope, timing and process.  The Company believes that the concerns with the Plan expressed by M&T go beyond scope, timing and process.  The Company is currently engaged in discussions with M&T to resolve differences over the Plan and is confident that those differences will be resolved.

 

Potential Modification by M&T

 

In connection with the first amendment to the ABL Facility described above, in order to facilitate the syndication of the ABL Facility amongst additional lenders, the Company and M&T agreed that if M&T were unable to reduce its final loan commitments under the ABL Facility to no more than $75.0 million prior to December 15, 2012, M&T would be entitled to add to or modify the terms of the ABL Facility on a unilateral basis, including but not limited to adjusting the advance rates, adding or modifying certain covenants and increasing the interest and fees payable in order to facilitate its syndication efforts.  In connection with such modifications, there is no limit or ceiling to the interest rate M&T could charge.  Notwithstanding these rights, M&T would not be able to do the following without the Company’s consent:

 

·      reduce the ABL Facility’s total amount to less than $170.0 million (as discussed above, this has been reduced to $145.0 million due to the third amendment);

·      impose a permanent fixed charge coverage ratio;

·      cause the springing fixed charge coverage ratio covenant in the ABL Facility to be greater than 1.00 to 1.00;

·      add a senior or total debt to EBITDA covenant with a less than 20% cushion from management projections;

·      add a net worth covenant with a less than 20% cushion from management projections;

·      restrict the Company’s ability to incur additional permitted indebtedness and related permitted liens for capital leases, purchase debt and sale-leaseback transactions to less than $35.0 million in the aggregate at any time;

·      if the Company’s fixed charge coverage ratio is 1.00 to 1.00 or greater, cause the advance rate for (a) eligible inventory to be less than 60%; (b) eligible accounts to be less than 85%; or (c) eligible real property to be less than the lower of (1) 75% of the appraised value thereof and (2) $65.0 million;

·      if the Company’s fixed charge coverage ratio is less than 1.00 to 1.00, cause the advance rate for (a) eligible inventory to be less than 40%; (b) eligible accounts to be less than 70%; or (c) eligible real property to be less than the lower of (1) 75% of the appraised value thereof and (2) $56.0 million; or

·      require that any of (a) Rock Solid Insurance Company, (b) South Woodbury L.P., (c) NESL II, LLC, (d) Kettle Creek Partners L.P. or (e) Kettle Creek Partners G.P., LLC guaranty the ABL Facility.

 

               As of February 28, 2013, despite M&T’s inability to successfully syndicate the ABL Facility, the terms of the ABL Facility have not been modified by M&T. However, should M&T choose to exercise its right to add or modify terms of the ABL Facility, borrowings under the ABL Facility may be subject to terms less favorable than the current terms of the ABL Facility which could negatively impact our financial position, cash flows and results of operations. Furthermore, such modifications may require us to renegotiate the terms of the ABL Facility or obtain additional financing. We may not be able to obtain such modifications or additional financing on commercially reasonable terms or at all. If we are unable to obtain such modifications or additional financing, we would have to consider other options, such as the sale of certain assets, sales of equity, and negotiations with our lenders to restructure our debt. The terms of our indebtedness may restrict, or market or business conditions may limit, our ability to do any or all of these things.

 

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Interest Rate and Availability

 

As of February 28, 2013, the weighted average interest rate on the ABL Facility was 4.0%. The effective interest rate, including all fees, for the ABL Facility was approximately 6.2% for fiscal year 2013. As discussed above, we recently amended our ABL Facility to fix the interest rate margin added to LIBOR based borrowings at 5.0%, fix the interest rate margin added to base rate borrowings at 3.0% and remove the 1.25% floor applicable to LIBOR based borrowings.

 

As of February 28, 2013, we had borrowed $24.3 million under the ABL Facility As of such date, the borrowing base was $109.7 million; provided, however, there was $84.7 million available to borrow because we were required to maintain at least $25 million of excess availability so that we do not trigger the fixed charge coverage ratio based covenant discussed above, We recently amended our ABL Facility to, among other things, reduce the overall commitment to $145.0 million and waive the $25.0 million minimum excess availability threshold for the fixed charge coverage ratio until November 30, 2014.

 

We believe we have sufficient financial resources, including cash and cash equivalents, cash from operations and amounts available for borrowing under our ABL Facility, to fund our business and operations for at least the next twelve months, including capital expenditures and debt service obligations. However, in the past we have failed to meet certain operating performance measures as well as the financial covenant requirements set forth under our previous credit facilities and our ABL Facility, which resulted in the need to obtain several amendments, and should we fail in the future, we cannot guarantee that we will be able to obtain such amendments. A failure to obtain such amendments could result in an acceleration of our indebtedness under the ABL Facility and a cross-default under our other indebtedness, including the Notes and Secured Notes. If the lenders were to accelerate the due dates of our indebtedness or if current sources of liquidity prove to be insufficient, there can be no assurance that the Company would be able to repay or refinance such indebtedness or to obtain sufficient funding. This could require the Company to restructure or alter its operations and capital structure.

 

***Cash Flows***

 

The following table summarizes our net cash provided by or used by operating activities, investing activities and financing activities and our capital expenditures for fiscal years 2013, 2012 and 2011:

 
| ** **                         | ** ** | **Year Ended**   | ** ** |
|------------------------------------|------------|-----------------------|------------|
| ** **                         | ** ** | **February 28,** | ** ** | **February 29,** | ** ** | **February 28,** | ** ** |
| **(In thousands)**            | ** ** | **2013**              | ** ** | **2012** | ** ** | **2011** | ** ** |
| Net cash provided by (used in):    |       |                  |       |   |   |   |   |
| Operating activities               |       | $                     | 20,030     |   | $ | 19,697 |   | $ | 47,503 |   |
| Investing activities               |       | (45,247               | )          | (46,848 | ) | (31,549 | ) |
| Financing activities               |       | 19,719                |       | 22,154 |   | (6,698 | ) |
| Cash paid for capital expenditures |       | (42,417               | )          | (43,954 | ) | (32,706 | ) |
|                                    |            |                       |            |  |  |  |  |  |  |  |

 

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***Operating Activities***

 

Net cash provided by operating activities increased $0.3 million to $20.0 million in fiscal year 2013, compared to $19.7 million in fiscal year 2012.  The increase in cash provided by operating activities was the result of improved working capital of $26.3 million due to decreased activity and better collections of accounts receivable, partially offset by less cash generated from operations of $26.0 million.  Operating cash flow in fiscal year 2013 included the favorable impact of the payment-in-kind interest election of $23.3 million.

 

Net cash provided by operating activities decreased $27.8 million to $19.7 million in fiscal year 2012, compared to $47.5 million in fiscal year 2011.  The decrease in cash provided by operating activities was primarily the result of an increased net loss for fiscal year 2012.  Operating activities also included an increase in deferred taxes and an increase in accounts payable as the result of the increased activity in the fourth quarter.

 

***Investing Activities***

 

Net cash used in our investing activities decreased $1.6 million to $45.2 million in fiscal year 2013 compared to $46.8 million in fiscal year 2012.  Net cash used in fiscal year 2013 included capital expenditures of $42.4 million and repayment of $3.0 million associated with our cash surrender value life insurance policies as well as an additional $0.3 million in payments, offset by proceeds from the sale of property and equipment of $0.3 million.  Net cash used in fiscal year 2012 included the addition of $8.6 million in capitalized software and capital expenditures of $35.4 million and the commitment of $8.8 million of cash collateral related to our captive insurance arrangement, offset by proceeds from the sale of property and equipment of $2.7 million and $2.8 million related to our cash surrender value life of insurance policies.

 

Net cash used in our investing activities increased $15.3 million to $46.8 million in fiscal year 2012 compared to $31.5 million in fiscal year 2011.  Net cash used in investing activities for fiscal year 2012 included cash for capital expenditures and capitalized software of $44.0 million, an increase of $11.3 million compared to cash capital expenditures and capitalized software of $32.7 million for fiscal year 2011. The increase in cash capital expenditures was partially offset by $2.7 million of cash received for the sale of property and equipment.  The increase in cash capital expenditures during fiscal year 2012 was attributable to additional expenditures related to our ERP of approximately $7.7 million and additional land and plant improvements of approximately $3.6 million.

 

***Financing Activities***

 

Net cash provided by financing activities decreased $2.5 million to $19.7 million for fiscal year 2013 compared to net cash provided by financing activities of $22.2 million in fiscal year 2012.  Net cash provided by our financing activities in fiscal year 2013 was primarily driven by the March 15, 2012 refinancing, which included the ABL Facility and $265.0 million in Secured Notes which was offset by the repayment of our previous first lien term loan A & B, first lien revolving credit facility and other long-term debt.  The Company also paid approximately $14.1 million in fees and related expenses associated with the refinancing which we have capitalized.

 

Net cash provided by financing activities increased $28.9 million to $22.2 million for fiscal year 2012 compared to net cash used in financing activities of $6.7 million in fiscal year 2011.  Net cash provided by our financing activities in fiscal year 2012 include net borrowings of $47.0 million under our revolving credit facility and other borrowings of $12.4 million, offset by $34.4 million of payments.  New borrowings under our revolving credit facility increased compared to fiscal year 2011 as part of the proceeds from the Notes were used to repay approximately $43.5 million of indebtedness under our revolving credit facility in the prior fiscal year.  The additional borrowings of $12.4 million, included $4.0 million for the refinancing of industrial revenue bonds during the first quarter and $8.0 million of unsecured borrowings available for seasonal liquidity.  We incurred approximately $1.7 million in costs associated with the ninth and eleventh amendments to our prior credit agreement and the incurrence of our prior $20.0 million secured credit facility.

 

As discussed below under “Our Indebtedness — *Asset-Based Loan Facility*”, as a result of our failure to file the registration statement with the Security and Exchange Commission and consummate a registered offer to exchange the Secured Notes for new

 

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Secured Notes within the required time period, we must pay an increased interest rate on the Secured Notes until such exchange offer is completed or the Secured Notes are redeemed.

 

***Capital Expenditures***

 

Cash capital expenditures decreased $1.6 million to $42.4 million in fiscal year 2013 compared to $44.0 million in fiscal year 2012.  This decrease is a result of $8.6 million lower capitalized software spend, offset by higher spending on existing manufacturing and other plant related equipment of $7.0 million.

 

Cash capital expenditures increased $11.3 million to $44.0 million in fiscal year 2012 compared to $32.7 million in fiscal year 2011.  This increase is a result of $7.7 million higher capitalized software spend, primarily related to our ERP system, and higher spending on existing manufacturing and other plant related equipment of $3.6 million.

 

**Our Indebtedness**

 

***Asset-Based Loan Facility***

 

On March 15, 2012, we completed the sale of the Secured Notes and entered into the ABL Facility.  We utilized the proceeds from the sale of the Secured Notes and borrowings under the ABL Facility to repay all amounts outstanding under, and terminate, our prior credit agreement and certain other debt.

 

***Notes Due 2018***

 

In August 2010, the Company sold $250.0 million aggregate principal amount of the Notes.  Interest on the Notes is payable semi-annually in arrears on March 1 and September 1 of each year.  At any time prior to September 1, 2014, the Company may redeem all or part of the Notes at a redemption price equal to 100.0% of the principal amount plus accrued and unpaid interest and an applicable “make-whole” premium which is set forth in the indenture governing the Notes. On or after September 1, 2014, the Company 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 September 1 of the years indicated below:

 

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| **Year**            | ** ** | **Percentage** | ** ** |
|---------------------|------------|----------------|------------|
| 2014                |       | 105.50         | %          |
| 2015                |       | 102.75         | %          |
| 2016 and thereafter |       | 100.00         | %          |

 

In addition, prior to September 1, 2013, the Company may redeem up to 35.0% of the aggregate principal Notes outstanding with the net cash proceeds from certain equity offerings at a redemption price equal to 111.0% of the principal amount thereof, together with accrued and unpaid interest. If the Company experiences a change of control, as outlined in the indenture, the Company may be required to offer to purchase the Notes at a purchase price equal to 101.0% of the principal amount, plus accrued interest.

 

The Notes are guaranteed on a full and unconditional, and joint and several basis, by certain of the Company’s existing and future domestic subsidiaries.  The indenture governing the Notes contains affirmative and negative covenants that, among other things, limit the Company’s and its subsidiaries’ ability to incur additional debt, make restricted payments, dividends or other payments from subsidiaries to the Company, create liens, engage in the sale or transfer of assets and engage in transactions with affiliates.  The Company is not required to maintain any affirmative financial ratios or covenants.

 

The Indenture governing the Notes required that the Company file a registration statement with the Securities and Exchange Commission and exchange the Notes for new Notes having terms substantially identical in all material respects to the Notes. The Company filed its registration statement with the SEC for the Notes on August 29, 2011. The registration statement became effective on September 13, 2011, and the Company concluded the exchange offer on October 12, 2011.

 

***Secured Notes due 2018***

 

Interest on the Secured Notes is initially payable at 13.0% per annum, semi-annually in arrears on March 15 and September 15.  The Company will make each interest payment to the holders of record of the Secured Notes as of the immediately preceding March 1 and September 1. The Company used the proceeds from this offering to repay certain existing indebtedness and to pay related fees and expenses.  The Secured Notes will mature on March 15, 2018.

 

With respect to any interest payment date on or prior to March 15, 2017, the Company may, at its option, elect (an ‘‘Interest Form Election’’) to pay interest on the Secured Notes (i) entirely in cash (‘‘Cash Interest’’) or (ii) subject to any Interest Rate Increase (as defined below), initially at the rate of 4% per annum in cash (‘‘Cash Interest Portion’’) and 9% per annum by increasing the outstanding principal amount of the Secured Notes or by issuing additional paid in kind notes under the indenture on the same terms as the Secured Notes (‘‘PIK Interest Portion’’ or “PIK Interest”); provided that in the absence of an Interest Form Election, interest on the Secured Notes will be payable as PIK Interest.  At February 28, 2013, PIK interest was $23.3 million ($11.9 million was recorded as an increase to the Secured Notes and $11.4 million was recorded as a long-term obligation in Other liabilities).

 

With respect to any interest payment payable after March 15, 2017, interest will be payable solely in cash. In addition, at the beginning of and with respect to each 12-month period that begins on March 15, 2013, March 15, 2014 and March 15, 2015, the interest rate on the Secured Notes as of such date shall permanently increase by an additional 1.0% per annum (an ‘‘Interest Rate Increase’’) unless the Company delivers a written notice to the Trustee of the Company’s election for such 12-month period to either (x) alter the manner of interest payment on the Secured Notes going forward by increasing the Cash Interest Portion and decreasing the PIK Interest Portion in each case in effect with respect to the immediately preceding interest period for which any PIK Interest was paid prior to each such election by, in each case, 1.0% per annum or (y) pay interest on the Secured Notes for such 12-month period entirely in cash (a ‘‘12-Month Cash Election’’). In the event of a 12-Month Cash Election for any 12-month period prior to March 15, 2017, the interest rate on the Secured Notes applicable for such 12-month period shall be 1.0% less than the total interest rate applicable to the Secured Notes in effect with respect to the immediately preceding interest period for which any PIK Interest was paid. Any Interest Rate Increase shall be affected by increasing the PIK Interest Portion in effect with respect to the immediately preceding interest period for which any PIK Interest was paid prior to each such Interest Rate Increase. If the Company makes a 12-Month Cash Election for and in respect of the 12-month period beginning on March 15, 2016, the same interest rate will apply for and in respect of the 12-month period beginning on March 15, 2017.  The additional 1.0% per annum Interest Rate Increase will only apply to the three consecutive annual periods beginning March 15, 2013.

 

On March 4, 2013, the Company notified the trustee of its Secured Notes that it had selected to pay interest on the Secured Notes for the 12-month period commencing March 15, 2013 in the form of 5% cash payment and 8% payment in kind, which represents $14.9 million and $23.6 million, respectively.  As such, the aggregate principal amount of old notes initially issued in the private placement transaction on March 15, 2012 increased by an additional $24,387,000 in additional notes issued as PIK interest in respect of the Secured Notes on the September 15, 2012 and March 15, 2013 interest payment dates.

 

At any time prior to March 15, 2015, the Company may redeem at its option up to 35% of the Secured Notes with the net cash

 

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proceeds from certain public equity offerings at a redemption price equal to 113.0% of the principal amount outstanding, plus accrued and unpaid interest. The Company may also redeem some or all of the Secured Notes at any time prior to March 15, 2015 at a redemption price equal to 100.0% of the principal amount of the outstanding Secured Notes, plus accrued and unpaid interest, plus a ‘‘make-whole’’ premium. On and after March 15, 2015, the Secured Notes will be redeemable, in whole or in part, at the redemption prices specified as follows:

 
| **Year**            | ** ** | **Percentage** | ** ** |
|---------------------|------------|----------------|------------|
| 2015                |       | 106.50         | %          |
| 2016                |       | 103.25         | %          |
| 2017 and thereafter |       | 100.00         | %          |

 

In addition, the Company may be required to make an offer to purchase the Secured Notes upon the sale of certain assets or upon a change of control. The Company will be required to redeem certain portions of the Secured Notes for tax purposes at the end of the first accrual period ending after the fifth anniversary of the Secured Notes issuance and each accrual period thereafter.

 

The Secured Notes are guaranteed on a joint and several basis, by certain of the Company’s existing and future domestic subsidiaries.  The Secured Notes and related guarantees are senior secured obligations of the Company and the Guarantors that rank equally in right of payment with all existing and future senior debt of the Company and the Guarantors, including the Notes and ABL Facility, and senior to all existing and future subordinated debt of the Company and Guarantors.  The Secured Notes and related guarantees are secured, subject to certain permitted liens and except for certain excluded assets, by first-priority liens on substantially all of the Company’s and Guarantors’ personal property and certain owned and leased real property and second-priority liens on certain real property and substantially all of the Company’s and Guarantors’ accounts receivable, inventory and deposit accounts and related assets and proceeds of the foregoing that secure the ABL Facility on a first-priority basis.

 

The indenture for the Secured Notes contains restrictive covenants that limit the Company’s ability and the ability of its subsidiaries that are restricted under the indenture to, among other things, incur additional debt, pay dividends or make distributions, repurchase capital stock or make other restricted payments, make certain investments, incur liens, merge, amalgamate or consolidate, sell, transfer, lease or otherwise dispose of all or substantially all assets and enter into transactions with affiliates.

 

In accordance with the indenture for the Secured Notes, the Company was required to file a registration statement with the Securities and Exchange Commission and consummate a registered offer to exchange the Secured Notes for new Secured Notes having terms substantially identical in all material respects to the Secured Notes by March 10, 2013.  We have not completed the exchange offer.  Due to the failure to consummate the exchange offer within the required time period, the interest rate on the Secured Notes has increased and will continue to increase by 0.25% per annum for the first 90-day period following the default and by an additional 0.25% per annum with respect to each subsequent 90-day period, up to a maximum additional rate of 1.0% per annum until such exchange offer is completed or the Secured Notes are redeemed.

 

***Land, equipment and other obligations***

 

The Company has various notes, mortgages and other financing arrangements resulting from the purchase of principally land and equipment.  All loans provide for at least annual payments and are principally secured by the land and equipment acquired.  The Company incurred $5.8 million and $4.4 million of new obligations under various financing arrangements related to equipment, assets and other in fiscal years 2013 and 2012, respectively.  The Company maintains irrevocable, transferable letters of credit equal to the approximate carrying value of each bond, in total for $5.4 million as of February 28, 2013.  The Company is subject to annual principal maturities each year which is funded on a monthly basis depending upon the terms of the original agreement. The Company’s plant and equipment provide collateral under these borrowings and for the letters of credit.

 

Obligations include loans of $7.5 million and $8.2 million as of February 28, 2013 and February 29, 2012, respectively, secured by certain facilities at 3.5% as of February 28, 2013 and 7.3% as of February 29, 2012.

 

From 1998 through 2005, the Company issued four revenue bonds to different industrial development authorities for counties in Pennsylvania in order to fund the acquisition and installation of plant and equipment.  The original issuance of these bonds totaled $25.3 million with dates of maturity through May 2022.  The Company maintains irrevocable, transferable letters of credit equal to the approximate carrying value of each bond, in total for $5.4 million and $10.6 million as of February 28, 2013 and February 29, 2012, respectively.  The effective interest rate on these bonds ranged from 0.23% to 0.41% for fiscal year 2013 and 0.28% to 0.46% for fiscal year 2012.  The Company is subject to annual principal maturities each year which is funded on either a quarterly or monthly basis, depending upon the terms of the original agreement.  The Company’s plant and equipment provide collateral under these borrowings and for the letters of credit.

 

Obligations include a cash overdrafts liability of $2.2 million, which is included within the current portion of long-term debt as of February 28, 2013.

 

All other obligations of $3.9 million and $4.2 million as of February 28, 2013 and February 29, 2012, respectively, relate to various equipment financings and are at a weighted average interest rates of 5.6% and 4.4%, respectively.

 

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***Obligations under capital lease***

 

The Company has various arrangements for the lease of machinery and equipment which qualify as capital leases. These arrangements typically provide for monthly payments, some of which include residual value guarantees if the Company were to terminate the arrangement during certain specified periods of time for each underlying asset under lease.

 

**Debt and Contractual Obligations**

 

The following table presents, as of February 28, 2013, our debt repayments, interest payments and our obligations and commitments to make future payments under contracts and contingent commitments:

 
| **(In thousands)**                 | ** ** | **Total** | ** ** | **2014** | ** ** | **2015** | ** ** | **2016** | ** ** | **2017** | ** ** | **2018** | ** ** | **Thereafter** | ** ** |
|-----------------------------------------|------------|-----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|
| ABL Facility                            |       | $         | 24,314     |     | $          | —   |       | $        | —     |     | $          | —   |       | $              | —     |   | $ | 24,314 |   | $ | — |   |
| 11.0% Senior notes due 2018             |       | 250,000   |       | —   |       | —   |       | —   |       | —   |       | —   |       | 250,000        |       |
| 13.0% Senior secured notes due 2018 (1) |       | 377,376   |       | —   |       | —   |       | —   |       | —   |       | —   |       | 377,376        |       |
| Land, equipment and other obligations   |       | 19,005    |       | 7,803    |       | 1,718    |       | 1,391    |       | 1,370    |       | 1,340    |       | 5,383          |       |
| Obligations under capital leases        |       | 7,743     |       | 3,539    |       | 2,327    |       | 1,310    |       | 481      |       | 79       |       | 7              |       |
| Interest payments (2)                   |       | 285,753   |       | 43,441   |       | 47,648   |       | 52,336   |       | 54,059   |       | 69,336   |       | 18,933         |       |
| Operating leases                        |       | 7,936     |       | 2,062    |       | 1,437    |       | 1,098    |       | 582      |       | 271      |       | 2,486          |       |
| Pensions (3)                            |       | 5,863     |       | 556      |       | 559      |       | 583      |       | 597      |       | 594      |       | 2,974          |       |
| Purchase commitments (4)                |       | 4,267     |       | 2,611    |       | 1,262    |       | 394      |       | —   |       | —   |       | —         |       |
| Total contractual obligations           |       | $         | 982,257    |     | $          | 60,012   |       | $        | 54,951     |     | $          | 57,112   |       | $              | 57,089     |   | $ | 95,934 |   | $ | 657,159 |   |

 

----

| (1)    |   | Assumes   refinanced debt at a 1% increase in cash interest and a 1% decrease in PIK   interest in months 13-24 (5% cash/8% PIK), assumes a 2% increase in cash and   2% decrease in PIK interest in months 25-36 (6% cash/7% PIK) and assumes a 3%   increase in cash and 3% decrease in PIK interest in months 37-48 (7% cash/6%   PIK). Amount includes PIK interest; cash interest is included in future   interest payments. |   |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
| (2)    |   | Future   interest payments were calculated using the applicable fixed and floating   rates charged by our lenders in effect as of February 28, 2013, with the   exception of future interest payments for our ABL Facility, which reflects   the interest rate in effect under the May 29, 2013 third amendment to the ABL   Facility. These interest payments may differ from actual results.                               |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
| (3)    |   | Amounts   represent estimated future benefit payments related to our defined benefit   plans and amount in “Thereafter” column is for fiscal years 2019-2023.                                                                                                                                                                                                                                                           |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
| (4)    |   | We   have a number of forward contracts for the purchase of fuels and other   commodities which contain commitments or obligations as of February 28,   2013. The future payments under these contracts are included here.                                                                                                                                                                                                   |   |

 

**Contingencies**

 

In the normal course of business, we have commitments, lawsuits, claims, and contingent liabilities. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position, statement of comprehensive income (loss) or liquidity.

 

We maintain a self-insurance program for workers’ compensation (Pennsylvania employees) coverage, which is administered by a third party management company. Our self-insurance retention is limited to $1.0 million per occurrence with the excess covered by workers’ compensation excess liability insurance. We are required to maintain a $7.2 million surety bond with the Commonwealth of Pennsylvania. Self-insurance costs are accrued based upon the aggregate of the liability for reported claims and an estimated liability for claims incurred but not reported. We also maintain three self-insurance programs for health coverage with losses limited to $0.3 million per employee. We are required to provide a letter of credit in the amount of $0.7 million to guarantee payment of the deductible portion of our liability coverage existing prior to January 1, 2008.

 

We also maintain a captive insurance company, RSIC, for workers’ compensation (non-Pennsylvania employees), general liability, auto, health and property coverage.  On April 8, 2011, RSIC entered into a Collateral Trust Agreement with an insurer to

 

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eliminate a letter of credit that was required to maintain coverage of the deductible portion of its liability coverage. The total amount of collateral provided in the arrangement was $8.8 million and is recorded on our consolidated balance sheet as part of restricted cash as of February 28, 2013 and February 29, 2012. Reserves for retained losses within this captive, which are recorded in accrued liabilities in the accompanying consolidated balance sheet, were approximately $10.8 million and $9.7 million as of February 28, 2013 and February 29, 2012, respectively. Exposures for periods prior to the inception of the captive are covered by pre-existing insurance policies. Other accrued insurance amounts include primarily workers’ compensation totaling $8.9 million and $ 8.7 million as of February 28, 2013 and February 29, 2012, respectively.

 

**Off Balance Sheet Arrangements**

 

We utilize off-balance sheet arrangements in our outstanding letters of credit primarily associated with our industrial development authority bonds totaling $11.9 million and $14.5 million at February 28, 2013 and February 29, 2012, respectively, which were not included in our Consolidated Balance Sheets.

 

**Critical Accounting Policies and Significant Judgments and Estimates**

 

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period.

 

On an ongoing basis, management evaluates its estimates, including those related to the carrying amount of property, plant and equipment; valuation of receivables, inventories, goodwill and intangible assets; recognition of revenue and loss contracts reserves under the percentage-of-completion method; assets and obligations related to employee benefit plans; asset retirement obligations; income tax valuation; and self-insurance reserves. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a detailed discussion of significant accounting policies that may involve a higher degree of judgment or complexity, refer to Note 1, ‘‘Nature of Operations and Summary of Significant Accounting Policies’’ as reported in our notes to our financial statements for fiscal year 2013 included elsewhere in this Annual Report on Form 10-K/A.

 

***Revenue Recognition***

 

We recognize revenue on construction contracts under the percentage-of-completion method of accounting, as measured by the cost incurred to date over estimated total cost.  Our construction contracts are primarily fixed-price contracts. The typical contract life cycle for these projects can be up to two to four years in duration. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to revenues and costs.  Revenue from contract change orders is recognized when the owner has agreed to the change order with the customer and the related costs are incurred. We do not recognize revenue on a basis of contract claims.  Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are identified. Contract costs include all direct material, labor, subcontract and other costs and those indirect costs related to contract performance, such as indirect salaries and wages, equipment repairs and depreciation, insurance and payroll taxes. Administrative and general expenses are charged to expense as incurred. Costs and estimated earnings in excess of billings on uncompleted contracts represent the excess of contract revenue recognized to date over billings to date. Billings in excess of costs and estimated earnings on uncompleted contracts represent the excess of billings to date over the amount of revenue recognized to date. As of February 28, 2013 and February 29, 2012, such amounts are included in accounts receivable (Note 3, “Accounts Receivable”) and accrued liabilities (Note 8, “Accrued Liabilities”), respectively, in the consolidated balance sheets.

 

We account for custom-built concrete products under the units-of-production method. Under this method, the revenue is recognized as the units are produced under firm contracts.

 

We generally recognize revenue on the sale of construction materials and concrete products, other than custom-built concrete products, when the customer takes title and assumes risk of loss. Typically, this occurs when products are shipped.

 

We recognize equipment rental revenue on a straight-line basis over the specific daily, weekly or monthly terms of the agreements. Revenues from the sale of equipment and contractor supplies are recognized at the time of delivery to, or pick-up by, the customer.

 

Other revenue consists of sales of miscellaneous materials, scrap and other products that do not fall into our other primary lines of business. We generally recognize revenue when the customer takes title and assumes risk of loss, the price is fixed or determinable and collection is reasonably assured.

 

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***Goodwill and Goodwill Impairment***

 

Goodwill is tested for impairment on an annual basis or more frequently whenever events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The impairment test for goodwill is a two-step process. Under the first step, the fair value of the reporting unit is compared with its carrying value. If the fair value of the reporting unit is less than its carrying value, an indication of impairment exists and the reporting unit must perform step two of the impairment test. Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.

 

Our reporting units were determined based on our organization structure, considering the level at which discrete financial information for businesses is available and regularly reviewed. The Company has three operating segments, which is the basis for determining its reporting units, organized around its three lines of business: (i) construction materials; (ii) heavy/highway construction; and (iii) traffic safety services and equipment. Construction materials include three reporting units within the operating segment based on geographic location. The operating segment of traffic safety services and equipment consists of one reporting unit within the segment based upon the similar economic characteristics of its operations.

 

The carrying value of each reporting unit is determined by assigning assets and liabilities, including goodwill, to those reporting units as of the measurement date. We use significant judgment in determining the most appropriate method to estimate the fair values of each of our reporting units. We estimate the fair values of the reporting units by considering the indicated fair values derived from both an income approach, which involves discounting estimated future cash flows, and a market approach, which involves the application of revenue and earnings multiples of comparable companies.

 

We complete a discounted future cash flow model for each reporting unit based upon projected earnings before interest and taxes (“EBIT”). Under this approach, we calculate the fair value of each reporting unit based on the present value of its estimated future cash flow.  In applying the discounted cash flow methodology, we rely on a number of factors, including future business plans, actual and forecasted operating results, and market data. The significant assumptions in our discounted cash flow models include our estimate of future profitability, revenue growth rates, capital requirements, and the discount rate. The profitability estimates used were derived from internal operating budgets and forecasts for long-term demand and pricing in our industry and markets. Any changes in key assumptions or management judgment with respect to a reporting unit or its prospects, which may result from a change in market conditions, market trends, interest rates or other factors outside of our control, or significant underperformance relative to historical or projected future operating results, could result in a significantly different estimate of the fair value of our reporting units, which could result in an impairment charge in the future.  The discount rates utilized reflect market-based estimates of capital costs and discount rates adjusted for management’s assessment of a market participant’s view with respect to other risks associated with the projected cash flows and overall size of the individual reporting units. Our estimates are based upon assumptions we believe to be reasonable, but which by nature are uncertain and unpredictable.

 

We then supplement this analysis by also calculating a fair value of the reporting unit utilizing EBIT market multiples applicable to our industry and peer group, the data for which we develop internally and through third-party sources.  If there is sufficient depth and availability of market comparables we will take a weighted average approach of the two methods in calculating the fair value of a reporting unit.  The weighting of these methods is subjective and based upon our judgment and our historical approach to calculating the fair value of a reporting unit.

 

Our annual goodwill impairment analysis takes place as of fiscal year-end.  As of February 28, 2013 and February 29, 2012, the estimated fair value of each of the reporting units was in excess of its carrying values even after conducting various sensitivity analyses on key assumptions, such that no adjustment to the carrying values of goodwill was required.  As of February 28, 2013 the estimated fair value of each of the reporting units was in excess of 15% of carrying values except for our Traffic Safety Services and Equipment reporting unit, which was approximately 15%.

 

***Other Intangible Assets***

 

Other intangible assets consist of technology, customer relationships and trademarks acquired in previous acquisitions. The technology and customer relationships are being amortized over a straight-line basis of 15 and 20 years, respectively. Our intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

 

The trademarks are considered to have an indefinite life and are not amortized but rather tested for impairment annually or whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable.  The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable based on a review of legal, regulatory, contractual, competitive, economic and other factors that limit the useful life of the asset. As a result of the Company’s review performed in combination with the annual impairment review completed as of February 28, 2013, the Company determined that factors had arisen which caused the Company to conclude that an indefinite useful life was no longer supportable.  Beginning in fiscal year 2014, our trademarks are being amortized on a straight-line basis between 30 and 50 years.  As a result, the Company recorded impairments of $2.0 million related to its Traffic Safety Services and Equipment reporting unit and $2.7 million related to its Construction Materials reporting unit. The remaining balance of our Traffic Safety Services and Equipment reporting unit’s trademark is $3.4 million and the remaining balance for our Construction Materials reporting unit’s trademark is $8.2 million as of February 28, 2013.

 

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We use a variety of methodologies in conducting the impairment assessment of our intangible assets including discounted cash flow models, which are based on the assumptions the Company believes a hypothetical marketplace participants would use. For the intangible assets, other than goodwill, if the carrying amount exceeds the fair value, an impairment charge is recognized in an amount equal to that excess. The fair value measurements for the impairments were categorized within Level 3 of the fair value hierarchy.

*** ***

***Self-Insurance***

 

We are self-insured for workers’ compensation and health coverage, subject to specific retention levels. Self-insurance costs are accrued based upon the aggregate of the liability for reported claims and an estimated liability for claims incurred but not reported.

 

***Asset Retirement Obligations***

 

We record the fair value of an asset retirement obligation, primarily for reclamation costs, as a liability in the period in which we incur a legal obligation associated with the retirement of tangible long-lived assets.  The associated asset retirement costs are capitalized as part of the underlying asset and depreciated over the estimated useful life of the asset.  The liability is accreted through charges to operating expenses.  If the asset retirement obligation is settled for other than the carrying amount of the liability, we will recognize a gain or loss on the settlement.

 

We are legally required to maintain reclamation bonds with the Commonwealth of Pennsylvania.  We calculate the land reclamation obligations based upon the legal requirements for bond posting amounts as adjusted for inflation and discounted using present value techniques at a credit-adjusted risk-free rate commensurate with the estimated years to settlement.

 

***Income Taxes***

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We established provisions for income taxes when, despite the belief that tax positions are fully supportable, there remain certain positions that do not meet the minimum probability threshold, as defined by the applicable accounting guidance, which is a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority. In the normal course of business, we and our subsidiaries are examined by various federal, state and foreign tax authorities. We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior fiscal years in determining the adequacy of the provision for income taxes. Interest accrued related to unrecognized tax benefits and penalties related to income tax are both included as a component of the provision for taxes and adjust the income tax provision, the current tax liability and deferred taxes in the period of which the facts that give rise to a revision become known.

 

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***Impairment of Definite-Lived Long-Lived Assets***

 

Long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable.  The Company considers an asset group as the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. For our construction materials and heavy/highway construction operations, the lowest level of largely independent identifiable cash flows is at the regional level, which collectively serves a local market. Each region shares and allocates its material production, resources, equipment and business activity among the locations within the region in generating cash flows.  Our regions are i) Central Pennsylvania, ii) Chambersburg, Shippensburg, Gettysburg, Pennsylvania, iii) Lancaster, Pennsylvania, iv) Northeastern Pennsylvania and v) Western New York.  The construction materials regions’ long-lived assets predominantly include limestone and sand acreage and crushing, prestressing equipment and manufacturing plants and the heavy/highway construction region’s long lived assets predominantly include contracting equipment and vehicles. The traffic safety services and equipment business, include two asset groups distinguished between its retail sales and distribution as one asset group and its manufacturing and assembly as the second asset group. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group.  If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds the fair value of the asset group.  Except for the trademark impairments discussed in “Other Intangible Assets” above, no other impairment charges were recorded.

 

***Recently Issued Accounting Standards***

 

Refer to Note 1, “Nature of Operations and Summary of Significant Accounting Policies”, to the Consolidated Financial Statements for a discussion of recent accounting guidance and pronouncements.

 

**Item 7A****.****                          ****QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.**

 

We have exposure to financial market risks, including changes in commodity prices, interest rates and other relevant market prices.

 

**Commodity Price Risk**

 

We are subject to commodity price risk with respect to price changes in energy, including fossil fuels, electricity and natural gas for production of hot mix asphalt and concrete, and diesel fuel for distribution and production-related vehicles. We attempt to limit our exposure to changes in commodity prices by putting sales price escalators in place for most public contracts, and we aggressively seek to obtain escalators on private and commercial contracts.

 

**Interest Rate Risk**

 

We are subject to interest rate risk in connection with borrowings under our indebtedness.  As of February 28, 2013, we have $24.3 million in indebtedness outstanding under our ABL Facility subject to variable interest rates.  Each change of 1.00% in interest rates would result in an approximate $0.2 million change in our annual interest expense in total on our ABL Facility.  Any debt we incur in the future could also bear interest at floating rates.

 

**Inflation Risk**

 

Overall inflation rates in recent years have not been a significant factor in our revenue or earnings due to our ability to recover increasing costs by obtaining higher prices for our products through sale price escalators in place for most public sector contracts. Inflation risk varies with the level of activity in the construction industry, the number, size and strength of competitors and the availability of products to supply a local market.

 

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**Item 8****.****                                   ****FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.**

 
| ** **                                                    | **Page(s)** |
|---------------------------------------------------------------|-------------|
|                                                          |        |
| **Report of Independent Registered Public Accounting   Firm** |        |
|                                                          |        |
| **Consolidated Financial Statements**                         |        |
|                                                          |        |
| Consolidated   Balance Sheets                                 | 64          |
|                                                          |        |
| Consolidated   Statements of Comprehensive Loss               | 65          |
|                                                          |        |
| Consolidated   Statements of Cash Flows                       | 66          |
|                                                          |        |
| Consolidated Statements of Changes in Equity (Deficit)        | 67          |
|                                                          |        |
| Notes to Consolidated Financial Statements                    | 68          |

 

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** **

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To The Board of Directors and Stockholders of

New Enterprise Stone & Lime Co., Inc.:

 

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive loss, cash flows, and changes in equity (deficit), present fairly, in all material respects, the financial position of  New Enterprise Stone & Lime Co., Inc. and its subsidiaries at February 28, 2013 and February 29, 2012, and the results of their operations and their cash flows for each of the three years in the period ended February 28, 2013 in conformity with accounting principles generally accepted in the United States of America.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.  We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

 

/s/ PricewaterhouseCoopers LLP

 

Harrisburg, Pennsylvania

May 29, 2013

 

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** **

**New Enterprise Stone & Lime Co., Inc. and Subsidiaries**

**Consolidated Balance Sheets**

 
| ** **                                                                                                                                                  | ** ** | **February 28,** | ** ** | **February 29,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| **(In thousands, except share and per share data)**                                                                      | ** ** | **2013**              | ** ** | **2012**              | ** ** |
| **Assets**                                                                                                                                                  |       |                  |       |                  |       |
| Current assets                                                                                                                                              |       |                  |       |                  |       |
| Cash and cash equivalents                                                                                                                                   |       | $                     | 9,534      |                  | $          | 15,032 |   |
| Restricted cash                                                                                                                                             |       | 10,123                |       | 10,322                |       |
| Accounts receivable, less reserves of $3,515 and   $3,259, respectively                                                                                     |       | 52,271                |       | 76,841                |       |
| Inventories                                                                                                                                                 |       | 125,144               |       | 132,195               |       |
| Deferred income taxes                                                                                                                                       |       | 12,386                |       | 16,019                |       |
| Other current assets                                                                                                                                        |       | 8,337                 |       | 7,788                 |       |
| Total current assets                                                                                                                                        |       | 217,795               |       | 258,197               |       |
| Property, plant and equipment, net                                                                                                                          |       | 371,868               |       | 371,574               |       |
| Goodwill                                                                                                                                                    |       | 89,073                |       | 90,847                |       |
| Other intangible assets                                                                                                                                     |       | 21,000                |       | 26,344                |       |
| Other assets                                                                                                                                                |       | 34,452                |       | 29,360                |       |
| Total assets                                                                                                                                                |       | $                     | 734,188    |                  | $          | 776,322 |   |
| **Liabilities and (Deficit) Equity**                                                                                                                        |       |                  |       |                  |       |
| Current liabilities                                                                                                                                         |       |                  |       |                  |       |
| Current maturities of long-term debt                                                                                                                        |       | $                     | 11,342     |                  | $          | 7,538 |   |
| Accounts payable — trade                                                                                                                               |       | 20,608                |       | 27,558                |       |
| Accrued liabilities                                                                                                                                         |       | 54,007                |       | 51,631                |       |
| Total current liabilities                                                                                                                                   |       | 85,957                |       | 86,727                |       |
| Long-term debt, less current maturities                                                                                                                     |       | 566,645               |       | 521,475               |       |
| Deferred income taxes                                                                                                                                       |       | 52,443                |       | 96,674                |       |
| Other liabilities                                                                                                                                           |       | 36,733                |       | 21,578                |       |
| Total liabilities                                                                                                                                           |       | 741,778               |       | 726,454               |       |
| Commitments and contingencies (Note 16)                                                                                                                     |       |                  |       |                  |       |
| (Deficit) equity                                                                                                                                            |       |                  |       |                  |       |
| Common stock, Class A, voting, $1 par value.   Authorized 30,000 shares; issued and outstanding 500 shares and 20,500   shares, respectively.          |       | 1                     |       | 21                    |       |
| Common stock, Class B, nonvoting, $1 par   value. Authorized 750,000 shares; issued and outstanding 273,285 shares and   250,925 shares, respectively. |       | 273                   |       | 251                   |       |
| Accumulated deficit                                                                                                                                         |       | (134,297              | )          | (76,779               | )          |
| Additional paid-in capital                                                                                                                                  |       | 126,962               |       | 126,964               |       |
| Accumulated other comprehensive loss                                                                                                                        |       | (2,422                | )          | (2,181                | )          |
| Total New Enterprise Stone & Lime   Co., Inc. (deficit) equity                                                                                |       | (9,483                | )          | 48,276                |       |
| Noncontrolling interest in consolidated   subsidiaries                                                                                                      |       | 1,893                 |       | 1,592                 |       |
| Total (deficit) equity                                                                                                                                      |       | (7,590                | )          | 49,868                |       |
| Total liabilities and (deficit) equity                                                                                                                      |       | $                     | 734,188    |                  | $          | 776,322 |   |

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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** **

**New Enterprise Stone & Lime Co., Inc. and Subsidiaries**

**Consolidated Statements of Comprehensive Loss**

 
| ** **                                                                                         | ** ** | **Year Ended**   | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                         | ** ** | **February 28,** | ** ** | **February 29,** | ** ** | **February 28,** | ** ** |
| **(In thousands)**                                                                            | ** ** | **2013**              | ** ** | **2012** | ** ** | **2011** | ** ** |
| Revenue                                                                                            |       |                  |       |   |   |   |   |
| Construction materials                                                                             |       | $                     | 355,666    |   | $ | 361,843 |   | $ | 346,328 |   |
| Heavy/highway construction                                                                         |       | 240,904               |       | 262,714 |   | 300,658 |   |
| Traffic safety services and equipment                                                              |       | 73,258                |       | 71,008 |   | 68,812 |   |
| Other revenues                                                                                     |       | 7,262                 |       | 10,369 |   | 9,601 |   |
| Total revenue                                                                                      |       | 677,090               |       | 705,934 |   | 725,399 |   |
|                                                                                               |       |                  |       |   |   |   |   |
| Cost of revenue (exclusive of items shown   separately below)                                      |       |                  |       |   |   |   |   |
| Construction materials                                                                             |       | 259,972               |       | 258,836 |   | 244,315 |   |
| Heavy/highway construction                                                                         |       | 232,953               |       | 255,303 |   | 281,077 |   |
| Traffic safety services and equipment                                                              |       | 60,044                |       | 55,840 |   | 50,026 |   |
| Other expenses                                                                                     |       | 4,534                 |       | 5,507 |   | 3,193 |   |
| Total cost of revenue                                                                              |       | 557,503               |       | 575,486 |   | 578,611 |   |
|                                                                                               |       |                  |       |   |   |   |   |
| Depreciation, depletion and amortization                                                           |       | 50,942                |       | 51,674 |   | 45,917 |   |
| Intangible asset impairment                                                                        |       | 4,704                 |       | 1,100 |   | — |   |
| Pension and profit sharing                                                                         |       | 8,325                 |       | 7,622 |   | 8,907 |   |
| Selling, administrative and general expenses                                                       |       | 77,138                |       | 64,511 |   | 61,547 |   |
| Loss (gain) on disposals of property, equipment   and software                                     |       | 323                   |       | 808 |   | (600 | ) |
| Operating (loss) income                                                                            |       | (21,845               | )          | 4,733 |   | 31,017 |   |
| Interest income                                                                                    |       | 140                   |       | 343 |   | 318 |   |
| Interest expense                                                                                   |       | (75,987               | )          | (46,902 | ) | (41,586 | ) |
| Loss before income taxes                                                                           |       | (97,692               | )          | (41,826 | ) | (10,251 | ) |
| Income tax benefit                                                                                 |       | (41,558               | )          | (16,397 | ) | (4,478 | ) |
| Net loss                                                                                           |       | (56,134               | )          | (25,429 | ) | (5,773 | ) |
| Unrealized actuarial (losses) gains and   amortization of prior service costs, net of income taxes |       | (241                  | )          | (778 | ) | 173 |   |
| Comprehensive loss                                                                                 |       | (56,375               | )          | (26,207 | ) | (5,600 | ) |
| Less: Comprehensive income attributable to   noncontrolling interest                               |       | (1,384                | )          | (820 | ) | (1,195 | ) |
| Comprehensive loss attributable to New Enterprise Stone &   Lime Co., Inc.           |       | $                     | (57,759    | ) | $ | (27,027 | ) | $ | (6,795 | ) |

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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**New Enterprise Stone & Lime Co., Inc. and Subsidiaries**

**Consolidated Statements of Cash Flows**

 
| ** **                                                                       | ** ** | **Year Ended**   | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                       | ** ** | **February 28,** | ** ** | **February 29,** | ** ** | **February 28,** | ** ** |
| **(In thousands)**                                                          | ** ** | **2013**              | ** ** | **2012** | ** ** | **2011** | ** ** |
|                                                                             |       |                  |       |   |   |   |   |
| **Reconciliation of net loss to net   cash provided by operating activities**    |       |                  |       |   |   |   |   |
| Net loss                                                                         |       | $                     | (56,134    | ) | $ | (25,429 | ) | $ | (5,773 | ) |
| Adjustments to reconcile net loss to net cash   provided by operating activities |       |                  |       |   |   |   |   |
| Depreciation, depletion and amortization                                         |       | 50,942                |       | 51,674 |   | 45,917 |   |
| Intangible asset impairment                                                      |       | 4,704                 |       | 1,100 |   | — |   |
| Loss (gain) on disposals of property, equipment   and software                   |       | 323                   |       | 808 |   | (600 | ) |
| Non-cash payment-in-kind interest accretion                                      |       | 23,348                |       | — |   | — |   |
| Amortization and write-off of debt issuance costs                                |       | 10,060                |       | 4,751 |   | 6,568 |   |
| Deferred income taxes                                                            |       | (41,547               | )          | (16,411 | ) | (868 | ) |
| Bad debt expense                                                                 |       | 1,035                 |       | 2,196 |   | 985 |   |
| Changes in assets and liabilities:                                               |       |                  |       |   |   |   |   |
| Accounts receivable                                                              |       | 23,535                |       | (11,665 | ) | (8,270 | ) |
| Inventories                                                                      |       | 4,643                 |       | (2,773 | ) | (2,208 | ) |
| Other assets                                                                     |       | (1,359                | )          | 3,047 |   | 3,179 |   |
| Accounts payable                                                                 |       | (5,617                | )          | 11,684 |   | 2,724 |   |
| Other liabilities                                                                |       | 6,097                 |       | 715 |   | 5,849 |   |
| Net cash provided by operating activities                                        |       | 20,030                |       | 19,697 |   | 47,503 |   |
| **Cash flows from investing   activities**                                       |       |                  |       |   |   |   |   |
| Capital expenditures                                                             |       | (42,394               | )          | (35,392 | ) | (31,777 | ) |
| Capitalized software                                                             |       | (23                   | )          | (8,562 | ) | (929 | ) |
| Proceeds from sale of property and equipment                                     |       | 304                   |       | 2,716 |   | 2,240 |   |
| Change in cash value of life insurance                                           |       | (3,333                | )          | 2,825 |   | (962 | ) |
| Change in restricted cash                                                        |       | 199                   |       | (8,435 | ) | (87 | ) |
| Other investing activities                                                       |       | —                |       | — |   | (34 | ) |
| Net cash used in investing activities                                            |       | (45,247               | )          | (46,848 | ) | (31,549 | ) |
| **Cash flows from financing   activities**                                       |       |                  |       |   |   |   |   |
| Proceeds from revolving credit                                                   |       | 224,729               |       | 145,477 |   | 100,164 |   |
| Repayment of revolving credit                                                    |       | (298,361              | )          | (98,500 | ) | (121,065 | ) |
| Proceeds from issuance of long-term debt                                         |       | 268,641               |       | 12,398 |   | 250,000 |   |
| Repayment of long-term debt                                                      |       | (155,202              | )          | (29,133 | ) | (219,180 | ) |
| Payments on capital leases                                                       |       | (4,943                | )          | (5,329 | ) | (5,009 | ) |
| Debt issuance costs                                                              |       | (14,062               | )          | (1,663 | ) | (9,967 | ) |
| Distribution to noncontrolling interest                                          |       | (1,083                | )          | (1,096 | ) | (1,641 | ) |
| Net cash provided by (used in) financing activities                              |       | 19,719                |       | 22,154 |   | (6,698 | ) |
| Net (decrease) increase in cash and cash   equivalents                           |       | (5,498                | )          | (4,997 | ) | 9,256 |   |
| **Cash and cash equivalents**                                                    |       |                  |       |   |   |   |   |
| Beginning of period                                                              |       | 15,032                |       | 20,029 |   | 10,773 |   |
| End of period                                                                    |       | $                     | 9,534      |   | $ | 15,032 |   | $ | 20,029 |   |

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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**New Enterprise Stone & Lime Co., Inc. and Subsidiaries**

**Consolidated Statements of Changes in Equity (Deficit)**

 
| ** **                                                                                    | ** ** | ** **       | ** ** | ** **       | ** ** | ** **      | ** ** | ** **     | ** ** | ** **        | ** ** | ** **                             | ** ** | ** **         | ** ** | ** **    | ** ** |
|-----------------------------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|-----------------|------------|----------------|------------|-------------------|------------|----------------------------------------|------------|--------------------|------------|---------------|------------|
| ** **                                                                                    | ** ** | ** **       | ** ** | ** **       | ** ** | ** **      | ** ** | ** **     | ** ** | **Accumulated**   | ** ** | **Total New**                     | ** ** | ** **         | ** ** | ** **    | ** ** |
| ** **                                                                                    | ** ** | **Common**       | ** ** | **Common**       | ** ** | ** **      | ** ** | **Additional** | ** ** | **Other**         | ** ** | **Enterprise Stone**              | ** ** | ** **         | ** ** | **Total**     | ** ** |
| ** **                                                                                    | ** ** | **Stock,**       | ** ** | **Stock,**       | ** ** | **Accumulated** | ** ** | **Paid-In**    | ** ** | **Comprehensive** | ** ** | **& Lime Co. Inc.** | ** ** | **Noncontrolling** | ** ** | **(Deficit)** | ** ** |
| **(In thousands)**                                                                       | ** ** | **Class A** | ** ** | **Class B** | ** ** | **Deficit**     | ** ** | **Capital**    | ** ** | **Loss**          | ** ** | **(Deficit) Equity**              | ** ** | **Interest**       | ** ** | **Equity**    | ** ** |
|                                                                                          |       |             |       |             |       |            |       |           |       |              |       |                                   |       |               |       |          |       |
| **Balance, February 28, 2010**                                                           |       | $                | —     |             | $          | —          |       | $              | (99,644    | )                 | $          | —                                 |       | $                  | (1,576     | )             | $          | (101,220 | ) | $ | 2,348 |   | $ | (98,872 | ) |
| Net   (loss) income                                                                           |       | —           |       | —           |       | (6,968          | )          | —         |       | —            |       | (6,968                                 | )          | 1,195              |       | (5,773        | )          |
| Pension   adjustment, net of tax of $122                                                      |       | —           |       | —           |       | —          |       | —         |       | 173               |       | 173                                    |       | —             |       | 173           |       |
| Change   in Redeemable Common Stock                                                           |       | —           |       | —           |       | 53,077          |       | —         |       | —            |       | 53,077                                 |       | —             |       | 53,077        |       |
| Subsidiary   interest adjustments                                                             |       | —           |       | —           |       | —          |       | —         |       | —            |       | —                                 |       | (34                | )          | (34           | )          |
| Distribution   to noncontrolling interest                                                     |       | —           |       | —           |       | —          |       | —         |       | —            |       | —                                 |       | (1,641             | )          | (1,641        | )          |
| **Balance, February 28, 2011**                                                           |       | —           |       | —           |       | (53,535         | )          | —         |       | (1,403            | )          | (54,938                                | )          | 1,868              |       | (53,070       | )          |
| Net   (loss) income                                                                           |       | —           |       | —           |       | (26,249         | )          | —         |       | —            |       | (26,249                                | )          | 820                |       | (25,429       | )          |
| Pension   adjustment, net of tax of $548                                                      |       | —           |       | —           |       | —          |       | —         |       | (778              | )          | (778                                   | )          | —             |       | (778          | )          |
| Change   in Redeemable Common Stock                                                           |       | —           |       | —           |       | 3,005           |       | —         |       | —            |       | 3,005                                  |       | —             |       | 3,005         |       |
| Elimination   of put right (1)                                                                |       | 21               |       | 251              |       | —          |       | 126,964        |       | —            |       | 127,236                                |       | —             |       | 127,236       |       |
| Distribution   to noncontrolling interest                                                     |       | —           |       | —           |       | —          |       | —         |       | —            |       | —                                 |       | (1,096             | )          | (1,096        | )          |
| **Balance, February 29, 2012**                                                           |       | 21               |       | 251              |       | (76,779         | )          | 126,964        |       | (2,181            | )          | 48,276                                 |       | 1,592              |       | 49,868        |       |
| Net   (loss) income                                                                           |       | —           |       | —           |       | (57,518         | )          | —         |       | —            |       | (57,518                                | )          | 1,384              |       | (56,134       | )          |
| Pension   adjustment, net of tax of $104                                                      |       | —           |       | —           |       | —          |       | —         |       | (241              | )          | (241                                   | )          | —             |       | (241          | )          |
| Exchange   of Class A voting common stock for Class B non-voting common stock   (1) |       | (20              | )          | 22               |       | —          |       | (2             | )          | —            |       | —                                 |       | —             |       | —        |       |
| Distribution   to noncontrolling interest                                                     |       | —           |       | —           |       | —          |       | —         |       | —            |       | —                                 |       | (1,083             | )          | (1,083        | )          |
| **Balance, February 28, 2013**                                                           |       | $                | 1          |             | $          | 273             |       | $              | (134,297   | )                 | $          | 126,962                                |       | $                  | (2,422     | )             | $          | (9,483 | ) | $ | 1,893 |   | $ | (7,590 | ) |

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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**New Enterprise Stone & Lime Co., Inc. and Subsidiaries**

**Notes to the Consolidated Financial Statements**

 

**1. ****          ****Nature of Operations and Summary of Significant Accounting Policies**

 

**Company Activities**

 

New Enterprise Stone & Lime Co., Inc., a Delaware corporation, is a leading privately held, vertically integrated construction materials supplier and heavy/highway construction contractor in Pennsylvania and western New York and a national traffic safety services and equipment provider.  Founded in 1924, the Company operates in three segments based upon the nature of its products and services: construction materials, heavy/highway construction and traffic safety services and equipment.  As used herein, the terms (“we,” “us,” “our,” “NESL,” or the “Company”) refer to New Enterprise Stone & Lime Co., Inc., and/or one or more of its subsidiaries.

 

Construction materials is comprised of aggregate production, including crushed stone and construction sand and gravel, hot mix asphalt production, ready mixed concrete production, and the production of concrete products, including precast/prestressed structural concrete components and masonry blocks.  Heavy/highway construction includes heavy construction, blacktop paving and other site preparation services. The Company’s heavy/highway construction operations are primarily supplied with construction materials from our construction materials segment.  Traffic safety services and equipment consists primarily of sales, leasing and servicing of general and specialty traffic control and work zone safety equipment and devices to industrial construction end-users.

 

Almost all of our products are produced and consumed outdoors.  Normally, our highest sales and earnings are in the second and third fiscal quarters and our lowest are in the first and fourth fiscal quarters.  As a result of this seasonality, our significant net working capital items, which are accounts receivable, inventories, accounts payable - trade and accrued liabilities, are typically higher as of interim period ends compared to fiscal year end.

 

**Principles of Consolidation**

 

The accompanying consolidated financial statements and notes included in this report have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly owned subsidiary companies, and their wholly owned subsidiary companies, and entities where the Company has a controlling equity interest.  During fiscal year 2011, we consolidated various legal entities in order to simplify our legal structure.  This consolidation did not affect our financial position, results of operations, or cash flows.  The companies in the consolidated group as of February 28, 2013 and February 29, 2012 include New Enterprise Stone & Lime Co., Inc.; Gateway Trade Center Inc.; EII Transport Inc.; Protection Services Inc.; Work Area Protection Corp.; SCI Products Inc.; ASTI Transportation Systems, Inc.; Precision Solar Controls Inc.; Rock Solid Insurance Company; Kettle Creek Partners GP, LLC; and Kettle Creek Partners L.P.

 

The consolidated financial statements also include the accounts of South Woodbury, L.P., which is 99% owned by certain life insurance trusts, which insure the lives of the principal stockholders of the Company. The remainder is owned by the Company through a 1% general partnership interest owned by a wholly-owned entity of the Company, NESL II, LLC.

 

South Woodbury, L.P. owns an office building in Roaring Spring, PA and an office building that is being used as the Company’s corporate headquarters in New Enterprise, PA. The Company entered into the lease agreements on February 28, 2003. The original lease terms for both leases end on May 31, 2023 and the Company has one five-year option to extend each lease. The annual base rents for the Roaring Spring, PA and New Enterprise, PA office buildings are $0.4 million and $2.0 million respectively, which may be reset to a fair market rate, as defined in the agreements.

 

Intercompany balances and transactions have been eliminated in consolidation.

 

Investments in entities in which the Company has an ownership interest of 50% or less are accounted for by the equity method. Investments in affiliated companies consist of a 16.2% membership interest in Means To Go, LLC as of February 28, 2013.

 

**Cash and Cash Equivalents and Restricted Cash**

 

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Cash balances were restricted in certain consolidated subsidiaries for bond sinking fund and insurance requirements as well as collateral on outstanding letters of credit or rentals.

 

In May 2012, the Company started using a cash pooling arrangement with a single financial institution with specific provisions for the right to offset positive and negative cash balances.  Accordingly, the Company classifies net aggregate cash overdraft positions as other obligations within the current maturities of long-term debt as of February 28, 2013, based on the short-term nature of these positions.

 

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**Accounts Receivable**

 

Trade accounts receivable, less allowance for doubtful accounts, are recorded at the invoiced amount plus service charges related to past due accounts.  The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable, including service charges.  The Company determines the allowance based on historical write-off experience, specific identification based on a review of individual past due balances and their composition, and the nature of the customer.  Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

 

**Concentrations of Credit Risk**

 

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.  The Company places its cash and temporary investments with high-quality financial institutions.  At times, such balances and investments may be in excess of federally insured limits; however, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.  The Company conducts business with various governmental entities within the Commonwealth of Pennsylvania.  These entities include PennDOT, the Pennsylvania Turnpike Authority and various townships, municipalities, school districts and universities within Pennsylvania.  The Company had $7.8 million and $4.6 million of accounts receivable from these governmental entities as of February 28, 2013 and February 29, 2012, respectively.  The Company has not experienced any material losses with these governmental agencies and does not believe it is exposed to any significant credit risk on the outstanding accounts receivable balances.

 

**Inventories**

 

Inventories are stated at the lower of cost or market. Cost is determined using either first-in, first-out (“FIFO”) or weighted average method based on the applicable category of inventories. The Company also maintains an allowance for obsolete inventories, which is based on recent sales activity and usage of related items.

 

**Rental Equipment**

 

Rental equipment, primarily related to the Company’s safety products business, is recorded at cost and depreciated over the estimated useful lives of the equipment using the straight-line method. The range of estimated useful lives for rental equipment is two to three years.

 

**Property, Plant and Equipment**

 

Property, plant and equipment are carried at cost. Assets under capital leases are stated at the lesser of the present value of minimum lease payments or the fair value of the leased item. Provision for depreciation is generally computed over estimated service lives using the straight-line method.

 

The average depreciable lives by fixed asset category are as follows:

 
| Land improvements                               |   | 20 years       |   |
|-------------------------------------------------|--------|----------------|--------|
| Buildings and improvements                      |   | 8 - 40 years   |   |
| Crushing, prestressing and manufacturing plants |   | 5 - 33 years   |   |
| Contracting equipment                           |   | 3 - 12.5 years |   |
| Trucks and autos                                |   | 3 - 8 years    |   |
| Office equipment                                |   | 5 - 10 years   |   |

 

Depletion of limestone deposits is calculated over proven and probable reserves by the units of production method on a quarry-by-quarry basis.

 

Repairs and maintenance are charged to operations as incurred.  Renewals or betterments, which materially add to the useful lives of property and equipment, are capitalized.

 

The Company capitalizes interest cost during the period assets are being constructed.  Interest capitalized on construction in progress amounted to $0.1 million, $0.3 million and $0.1 million during fiscal years 2013, 2012 and 2011, respectively.  We capitalized $0.3 million of interest cost related to our new enterprise resource planning system (“ERP”) during fiscal year 2012; no amounts were capitalized during fiscal years 2013 or 2011.

 

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**Goodwill and Goodwill Impairment**

 

Goodwill is tested for impairment on an annual basis or more frequently whenever events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.  The impairment test for goodwill is a two-step process.  Under the first step, the fair value of the reporting unit is compared with its carrying value.  If the fair value of the reporting unit is less than its carrying value, an indication of impairment exists and the reporting unit must perform step two of the impairment test.  Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation.  If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.

 

Our reporting units were determined based on our organization structure, considering the level at which discrete financial information for businesses is available and regularly reviewed. The Company has three operating segments, which is the basis for determining its reporting units, organized around its three lines of business: (i) construction materials; (ii) heavy/highway construction; and (iii) traffic safety services and equipment. Construction materials include three reporting units within the operating segment based on geographic location. The operating segment of traffic safety services and equipment consists of one reporting unit within the segment based upon the similar economic characteristics of its operations.

 

The carrying value of each reporting unit is determined by assigning assets and liabilities, including goodwill, to those reporting units as of the measurement date.  We use significant judgment in determining the most appropriate method to estimate the fair values of each of our reporting units.  We estimate the fair values of the reporting units by considering the indicated fair values derived from both an income approach, which involves discounting estimated future cash flows and a market approach, which involves the application of revenue and earnings multiples of comparable companies.

 

We complete a discounted future cash flow model for each reporting unit based upon projected earnings before interest and taxes (“EBIT”).  Under this approach, we calculate the fair value of each reporting unit based on the present value of its estimated future cash flow.  In applying the discounted cash flow methodology, we rely on a number of factors, including future business plans, actual and forecasted operating results and market data.  The significant assumptions in our discounted cash flow models include our estimates of future profitability, revenue growth rates, capital requirements and the discount rate.  The profitability estimates used are derived from internal operating budgets and forecasts for long-term demand and pricing in our industry and markets.  Any changes in key assumptions or management judgment with respect to a reporting unit or its prospects, which may result from a change in market conditions, market trends, interest rates or other factors outside of our control, or significant underperformance relative to historical or projected future operating results, could result in a significantly different estimate of the fair value of our reporting units, which could result in an impairment charge in the future.  The discount rates utilized reflect market-based estimates of capital costs and discount rates adjusted for management’s assessment of a market participant’s view with respect to other risks associated with the projected cash flows and overall size of the individual reporting units.  Our estimates are based upon assumptions we believe to be reasonable, but which by nature are uncertain and unpredictable.

 

We then supplement this analysis by also calculating a fair value of the reporting unit utilizing EBIT market multiples applicable to our industry and peer group, the data for which we develop internally and through third-party sources.  If there is sufficient depth and availability of market comparables, we will take a weighted average approach of the two methods in calculating the fair value of a reporting unit.  The weighting of these methods is subjective and based upon our judgment and our historical approach to calculating the fair value of a reporting unit.

 

Our annual goodwill impairment analysis takes place as of fiscal year end.  As of February 28, 2013 and February 29, 2012, the estimated fair value of each of the reporting units was in excess of its carrying values even after conducting various sensitivity analyses on key assumptions, such that no adjustment to the carrying values of goodwill was required.  As of February 28, 2013 the estimated fair value of each of the reporting units was in excess of 15% of carrying values except for our Traffic Safety Services and Equipment reporting unit, which was approximately 15%.

 

**Other Intangible Assets**

 

Other intangible assets consist of technology, customer relationships and trademarks acquired in previous acquisitions. The technology and customer relationships are being amortized over a straight-line basis of 15 and 20 years, respectively. Our intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

 

The trademarks are considered to have an indefinite life and are not amortized but rather tested for impairment annually or whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable.  The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable based on a review of legal, regulatory, contractual, competitive, economic and other factors that limit the useful life of the asset. As a result of the Company’s review performed in combination with the annual impairment review completed as of February 28, 2013, the Company determined that factors had arisen which caused the Company to conclude that an indefinite useful life was no longer supportable.  Beginning in fiscal year 2014, our trademarks will be amortized on a straight-line basis between 30 and 50 years.  As a result, the Company recorded impairments of $2.0 million related to its Traffic Safety Services and Equipment reporting unit and $2.7 million related to its

 

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Construction Materials reporting unit. The remaining balance of our Traffic Safety Services and Equipment reporting unit’s trademark is $3.4 million and the remaining balance for our Construction Materials reporting unit’s trademark is $8.2 million as of February 28, 2013.

 

We use a variety of methodologies in conducting the impairment assessment of our intangible assets including discounted cash flow models, which are based on the assumptions the Company believes a hypothetical marketplace participants would use. For the intangible assets, other than goodwill, if the carrying amount exceeds the fair value, an impairment charge is recognized in an amount equal to that excess. The fair value measurements for the impairments were categorized within Level 3 of the fair value hierarchy.

 

**Other Noncurrent Assets**

 

Other noncurrent assets consist primarily of deferred financing fees, capitalized software, the cash surrender value of Company owned life insurance policies and deferred stripping costs.  Deferred financing costs are amortized to interest expense over the terms of the associated credit agreements using the effective interest method of amortization.  Capitalized software costs consist primarily of internal and external costs associated with the implementation of our ERP system.  The amortizable lives of our capitalized software are 3 - 10 years.  Deferred stripping costs consist of costs incurred during the development stage of a mine (pre-production stripping) and are expensed over the productive life of the mine using the units-of-production method.

 

**Asset Retirement Obligations**

 

The Company records the fair value of an asset retirement obligation, primarily for reclamation costs, as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets.  The associated asset retirement costs are capitalized as part of the underlying asset and depreciated over the estimated useful life of the asset.  The liability is accreted through charges to operating expenses.  If the asset retirement obligation is settled for other than the carrying amount of the liability, the Company will recognize a gain or loss on the settlement.

 

The Company is legally required to maintain reclamation bonds with the Commonwealth of Pennsylvania.  The land reclamation obligation calculated by the Company is based upon the legal requirements for bond posting amounts and is adjusted for inflation and discounted using present value techniques at a credit-adjusted risk-free rate commensurate with the estimated years to settlement.

 

**Revenue Recognition**

 

We recognize revenue on construction contracts under the percentage-of-completion method of accounting, as measured by the cost incurred to date over estimated total cost.  Our construction contracts are primarily fixed-price contracts.  The typical contract life cycle for these projects can be up to two to

 

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four years in duration.  Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to revenues and costs.  Revenue from contract change orders is recognized when the owner has agreed to the change order with the customer and the related costs are incurred.  We do not recognize revenue on basis of contract claims.  Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are identified.  Contract costs include all direct material, labor, subcontract and other costs and those indirect costs related to contract performance, such as indirect salaries and wages, equipment repairs and depreciation, insurance and payroll taxes.  Administrative and general expenses are charged to expense as incurred.  Costs and estimated earnings in excess of billings on uncompleted contracts represent the excess of contract revenue recognized to date over billings to date.  Billings in excess of costs and estimated earnings on uncompleted contracts represent the excess of billings to date over the amount of revenue recognized to date.  As of February 28, 2013 and February 29, 2012, such amounts are included in accounts receivable (Note 3, “Accounts Receivable”) and accrued liabilities (Note 8, “Accrued Liabilities”), respectively, in the consolidated balance sheets.

 

The Company accounts for custom-built concrete products under the units-of-production method.  Under this method, the revenue is recognized as the units are produced under firm contracts.

 

The Company generally recognizes revenue on the sale of construction materials and concrete products, other than custom-built concrete products, when the customer takes title and assumes risk of loss.  Typically, this occurs when products are shipped.

 

The Company recognizes equipment rental revenue on a straight-line basis over the specific daily, weekly or monthly terms of the agreements.  Revenues from the sale of equipment and contractor supplies are recognized at the time of delivery to, or pick-up by, the customer.

 

Other revenue consists of sales of miscellaneous materials, scrap and other products that do not fall into our other primary lines of business.  The Company generally recognizes revenue when the customer takes title and assumes risk of loss, the price is fixed or determinable and collection is reasonably assured.

 

**Self-Insurance**

 

The Company is self-insured for workers’ compensation and health coverage, subject to specific retention levels.  Self-insurance costs are accrued based upon the aggregate of the liability for reported claims and an estimated liability for claims incurred but not reported.

 

**Fair Value**

 

The Company determines fair value for its assets and liabilities in accordance with applicable accounting standards, which define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The fair value determined is based on assumptions that market participants would use, including consideration of nonperformance risk.  The carrying amounts of cash, restricted cash and cash equivalents, trade receivables, accounts payable, accrued expenses and short-term debt approximate fair value because of the short-term maturity of these financial instruments.

 

**Impairment of Definite-Lived Long-Lived Assets**

 

Long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable.  The Company considers an asset group as the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. For our construction materials and heavy/highway construction operations, the lowest level of largely independent identifiable cash flows is at the regional level, which collectively serves a local market. Each region shares and allocates its material production, resources, equipment and business activity among the locations within the region in generating cash flows.  Our regions are i) Central Pennsylvania, ii) Chambersburg, Shippensburg, Gettysburg, Pennsylvania, iii) Lancaster, Pennsylvania, iv) Northeastern Pennsylvania and v) Western New York.  The construction materials regions’ long-lived assets predominantly include limestone and sand acreage and crushing, prestressing equipment and manufacturing plants and the heavy/highway construction region’s long lived assets predominantly include contracting equipment and vehicles. The traffic safety services and equipment business includes two asset groups, distinguished between its retail sales and distribution as one asset group and its manufacturing and assembly as the second asset group.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group.  If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds the fair value of the asset group.  Except for the trademark impairments discussed in “Other Intangible Assets” above, no other impairment charges were recorded.

 

**Income Taxes**

 

Income taxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.  We establish provisions for income taxes when, despite the belief that tax positions are fully supportable, there remain

 

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certain positions that do not meet the minimum probability threshold, as defined by the applicable accounting guidance, which is a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority.  In the normal course of business, the Company and its subsidiaries are examined by various federal, state and foreign tax authorities.  We regularly assess the potential outcomes of these examinations and any future examinations for current and prior fiscal years in determining the adequacy of the provision for income taxes.  Interest accrued related to unrecognized tax benefits and penalties related to income tax are both included as a component of the provision for taxes and adjust the income tax provision, the current tax liability and deferred taxes in the period during which the facts that give rise to a revision become known.

 

**Use of Estimates**

 

The preparation of the consolidated financial statements requires management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period.  Significant items subject to such estimates and assumptions include the carrying amount of property, plant and equipment; valuation of receivables, inventories, goodwill and other intangible assets; recognition of revenue and loss contract reserves under the percentage-of-completion method; assets and obligations related to employee benefit plans; asset retirement obligations; income tax valuation; and self-insurance reserves.  Actual results could differ from those estimates.

 

**New Accounting Standards**

 

*Recently Issued Accounting Standards*

 

In July 2012, the FASB issued ASU No. 2012-02, *Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment*.  This ASU gives companies the option to first assess qualitative factors to determine whether it is more likely than not that the indefinite-lived intangible asset is impaired.  If it is determined that it is more likely than not the indefinite-lived intangible asset is impaired, a quantitative impairment test is required.  However, if it is concluded otherwise, the quantitative test is not necessary.  This ASU will be effective commencing with the three months ending May 31, 2013.  We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

 

In February 2013, the FASB issued ASU No. 2013-02, *Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (Topic 220)*.  This ASU requires companies to provide information about the amounts reclassified out of accumulated other comprehensive income (“AOCI”) by component.  In addition, companies are required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period.  For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts.  This ASU does not change the current requirements for reporting net income or other comprehensive income in the financial statements.  This ASU will be effective commencing with the three months ending May 31, 2013.  We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

 

*Recently Adopted Accounting Standards*

 

In May, 2011, the FASB issued ASU No. 2011-04, *Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs*.  The amendments in this update result in common fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards (“IFRSs”) and change the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements.  For many of the requirements, it is not intended for the amendments to result in a change in the application of the requirements in Topic 820.  Some of the amendments clarify the intent about the application of existing fair value measurement requirements.  Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.  We adopted this standard on March 1, 2012, which did not have a material impact on the consolidated financial statements.

 

In June 2011, the FASB issued ASU 2011-05, *Presentation of Comprehensive Income*, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income.  This update also eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.  We adopted this standard on March 1, 2012, which did not have a material impact on the consolidated financial statements.

 

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In September 2011, the FASB issued ASU 2011-08, *Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment*, which amends the goodwill impairment testing guidance in ASC 350-20, *Goodwill*.  Under the amended standard, an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test.  Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.  The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment.  The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted.  We adopted this standard on March 1, 2012, which did not have a material impact on the consolidated financial statements.

 

**Reclassifications**

 

Certain items previously reported in prior period financial statement captions have been conformed to agree with the current presentation.

 

**2. ****          ****Risks and Uncertainties**

 

Our business is heavily impacted by several factors which are outside the control of management, including the overall health of the economy, the level of commercial and residential construction, the level of federal, state and local publicly funded construction projects and seasonal variations generally attributable to weather conditions.  These factors impact the amount and timing of our revenues and our overall performance.

 

On March 15, 2012, the Company completed the sale of $265.0 million in 13.0% senior secured notes due 2018 (the “Secured Notes”).  In connection with the sale of the Secured Notes, we also entered into the ABL Facility.  We utilized the proceeds from the sale of the Secured Notes and the ABL Facility to prepay all amounts outstanding under our prior credit agreement and certain other debt.

 

The ABL Facility contained a covenant that required us to deliver our fiscal year 2012 annual financial statements to the lender by May 29, 2012.  On September 7, 2012, we entered into the first amendment to the ABL Facility to change the required delivery date of the fiscal year 2012 annual financial statements and the required delivery dates of the fiscal year 2013 first and second quarter results and financial statements.  Subsequent to the date of the first amendment, we required multiple extensions of time and ultimately filed our fiscal year 2012 annual financial statements, our fiscal year 2013 first and second quarter results and financial statements on December 15, 2012, January 1, 2013 and February 28, 2013, respectively.

 

As part of the first amendment entered into on September 7, 2012, the borrowing base formula under the ABL Facility became subject to adjustment based on the most recent Fixed Charge Coverage Ratio.  If the Fixed Charge Coverage Ratio based on the most recently delivered financial statements is less than 1.0 to 1.0, the borrowing base will be equal to the sum of (a) the lesser of (i) $56.0 million (from $65.0 million) and (ii) 65% (from 75%) of the appraised value of the eligible real property plus (b) 70% (from 85%) of the outstanding balance of eligible accounts receivable plus (c) 40% (from 60%) of eligible inventory, minus (d) reserves imposed by the agent of the ABL Facility in the exercise of reasonable business judgment from the perspective of a secured asset-based lender, minus (e) reserves imposed by the agent to the ABL Facility with respect to branded inventory in its sole discretion.  The Company was subject to the adjusted borrowing base calculation as of February 28, 2013 due to its Fixed Charge Coverage Ratio being below 1.0 to 1.0.  The first amendment also added a 1.25% floor to LIBOR for purposes of determining the interest rate applicable to LIBOR based borrowings, which was later removed as discussed below.

 

In connection with the first amendment we also agreed with M&T that, in the event M&T was unable to reduce its final participation in the ABL Facility to no more than $75.0 million during the primary syndication of the ABL Facility by December 15, 2012, M&T would be entitled to add or modify certain terms of the ABL Facility that were previously prohibited from being added or modified, including but not limited to the advance rates, and certain covenants and the interest and fees payable. M&T has not syndicated the ABL Facility as of the balance sheet date and M&T has not modified the terms of the ABL Facility.

 

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On December 7, 2012, we entered into the second amendment to the ABL Facility to change the required delivery date of our fiscal year 2013 third quarter results and financial statements. Subsequent to the date of the second amendment, we required an extension of time and ultimately filed our third quarter results and financial statements on April 1, 2013. There can be no guarantee the Company will not need to obtain similar amendments in the future. A failure to obtain such an amendment could result in an acceleration of our indebtedness under the ABL Facility and a cross-default under our other indebtedness, including the Notes and Secured Notes. See further discussion of the ABL Facility and other effects of the first amendment in Note 9, “Long-Term Debt.”

 

On May 29, 2013, we entered into the third amendment to the ABL Facility, which provided increased short-term borrowing availability.  As part of the third amendment, we agreed to the following revised terms:  (i) the aggregate overall amount of the ABL Facility was reduced from $170.0 million to $145.0 million; (ii) through November 30, 2014, we are no longer required to maintain minimum excess availability (as defined in the ABL Facility); (iii)  the interest rate margin added to applicable LIBOR based borrowings has increased to a fixed 5%; (iv) the interest rate margin added to applicable Base Rate borrowings has increased to a fixed 3%; (v) the 1.25% floor applicable to LIBOR based borrowings has been removed; and (vi) to the extent that we dispose of assets that are ABL Priority Collateral and certain unencumbered assets, the net cash proceeds will be used to prepay outstanding borrowings under the ABL Facility and the overall ABL Facility will be reduced by $1 for each $1 of assets sold up to $15 million.

 

In connection with the third amendment, we also agreed with M&T that our board of directors will create a special committee consisting of our four non-employee directors, which we refer to as the special committee, that will engage an advisor to develop a business plan that focuses on cost reductions and operational efficiencies, which we refer to as the Plan. Upon the approval of the Plan by a majority of the members of the special committee, the Plan will be submitted to the entire board of directors for approval.  The vote of more than seven directors will be required to reject the Plan. The Plan must also be reasonably acceptable in scope, timing and process to M&T. Once the Plan is approved by the board of directors, the special committee will be authorized to oversee the implementation of the Plan by our management.

 

The third amendment did not change other significant terms of the ABL Facility such as the maturity, borrowing base formula, and covenants, as applicable.

 

The Company agreed to pay $0.3 million in fees to effect the third amendment to the ABL Facility and as a result of the reduction in the maximum borrowings of the ABL Facility the Company will also expense $0.7 million of unamortized deferred debt issuance costs to interest expense.

 

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On September 5 and 6, 2012 the Company received notices of default from the trustee under the Secured Notes and the Notes, respectively. The notices of default were related to the Company’s inability to provide the trustee with copies of the Company’s 2012 10-K and Quarterly Report on Form10-Q for the period ended May 31, 2012 in a timely manner as required by the underlying indentures.  In accordance with the terms and conditions of the underlying indentures, the Company had 120 days from the date of those notices to cure such default by complying with its reporting requirements and related filings.  The Company filed its 2012 10-K and its Quarterly Report on Form 10-Q for the period ended May 31, 2012 within the 120 day period and therefore has cured such defaults under the indentures.  On January 14, 2013, the Company received a notice of default from the trustee under the indentures for the Secured Notes and Notes due to the Company’s  inability to provide its Quarterly Report on Form 10-Q for the second fiscal quarter ended August 31, 2012 in compliance with the indentures.  We filed our Quarterly Report on Form 10-Q for the second fiscal quarter ended August 31, 2012 within the 120 day period and therefore cured such default under the indentures.

 

We believe we have sufficient financial resources, including cash and cash equivalents, cash from operations and amounts available for borrowing under our ABL Facility, to fund our business and operations for at least the next twelve months, including capital expenditures and debt service obligations. However, in the past we have failed to meet certain operating performance measures as well as the financial covenant requirements set forth under our previous credit facilities and our ABL Facility, which resulted in the need to obtain several amendments, and should we fail in the future, we cannot guarantee that we will be able to obtain such amendments. A failure to obtain such amendments could result in an acceleration of our indebtedness under the ABL Facility and a crossdefault under our other indebtedness, including the Notes and Secured Notes. If the lenders were to accelerate the due dates of our indebtedness or if current sources of liquidity prove to be insufficient, there can be no assurance that the Company would be able to repay or refinance such indebtedness or to obtain sufficient funding.  This could require the Company to restructure or alter its operations and capital structure.

 

We were required to register and exchange the Secured Notes by March 10, 2013 or be subject to penalty interest. The penalty interest is 25 basis points for the first 90 days and each 90 days until it reaches 1% and will remain at 1% until we complete the registration of the Secured Notes.  We have not currently registered the Secured Notes.

 

**3. ****         ****Accounts Receivable**

 

The Company’s accounts receivable consists of the following:

 
| ** **                                         | ** ** | **February 28,** | ** ** | **February 29,** | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| **(In thousands)**                            | ** ** | **2013**              | ** ** | **2012**              | ** ** |
|                                               |       |                  |       |                  |       |
| Costs and estimated earnings in excess of billings |       | $                     | 4,265      |                  | $          | 14,570 |   |
| Trade                                              |       | 48,392                |       | 60,172                |       |
| Retainages                                         |       | 3,129                 |       | 5,358                 |       |
|                                               |       | 55,786                |       | 80,100                |       |
| Allowance for doubtful accounts                    |       | (3,515                | )          | (3,259                | )          |
| Accounts receivable, net                           |       | $                     | 52,271     |                  | $          | 76,841 |   |

 

Costs and estimated earnings in excess of billings related to uncompleted contracts and amounts not processed by governmental agencies.  State and local agencies often require several approvals to process billings or payments and this may cause a lag in payment times.

 

**4. ****          ****Inventories**

 

The Companies inventories consist of the following:

 
| ** **                                 | ** ** | **February 28,** | ** ** | **February 29,** | ** ** |
|--------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| **(In thousands)**                    | ** ** | **2013**              | ** ** | **2012**              | ** ** |
|                                       |       |                  |       |                  |       |
| Crushed stone, agricultural lime, and sand |       | $                     | 76,927     |                  | $          | 84,016 |   |
| Safety equipment                           |       | 16,057                |       | 16,901                |       |
| Parts, tires, and supplies                 |       | 11,331                |       | 11,313                |       |
| Raw materials                              |       | 9,247                 |       | 9,400                 |       |
| Concrete blocks                            |       | 4,210                 |       | 4,547                 |       |
| Building materials                         |       | 3,921                 |       | 3,982                 |       |
| Other                                      |       | 3,451                 |       | 2,036                 |       |
|                                       |       | $                     | 125,144    |                  | $          | 132,195 |   |

 

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**5. ****          ****Property, Plant & Equipment**

 

The Company’s property, plant & equipment consist of the following:

 
| ** **                                       | ** ** | **February 28,** | ** ** | **February 29,** | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| **(In thousands)**                          | ** ** | **2013**              | ** ** | **2012**              | ** ** |
|                                             |       |                  |       |                  |       |
| Limestone and sand acreage                       |       | $                     | 144,076    |                  | $          | 142,034 |   |
| Land, buildings and building improvements        |       | 100,074               |       | 96,504                |       |
| Crushing, prestressing, and manufacturing plants |       | 326,066               |       | 310,130               |       |
| Contracting equipment, vehicles and other        |       | 300,450               |       | 281,543               |       |
| Construction in progress                         |       | 5,680                 |       | 8,829                 |       |
| Property, plant and equipment                    |       | 876,346               |       | 839,040               |       |
| Less: Accumulated depreciation and depletion     |       | (504,478              | )          | (467,466              | )          |
| Property, plant and equipment, net               |       | $                     | 371,868    |                  | $          | 371,574 |   |

 

Depreciation expense was $47.5 million, $48.7 million and $43.2 million for fiscal years 2013, 2012 and 2011, respectively.  Included in the contracting equipment, vehicles and other asset category above are capital leases with a cost basis of $23.6 million and $25.8 million as of February 28, 2013 and February 29, 2012, respectively.

 

**6.****                  ****Goodwill and Other Intangible Assets**

 

*Goodwill*

 

The following table presents the gross amount of goodwill and accumulated impairment losses by segment:

 
| ** **                            | ** ** | **February 28, 2013** | ** ** | **February 29, 2012** | ** ** |
|---------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                            | ** ** | **Gross**                       | ** ** | **Accumulated**                 | ** ** | **Net** | ** ** | **Gross** | ** ** | **Accumulated** | ** ** | **Net** | ** ** |
| ** **                            | ** ** | **Carrying**                    | ** ** | **Impairment**                  | ** ** | **Carrying** | ** ** | **Carrying** | ** ** | **Impairment** | ** ** | **Carrying** | ** ** |
| **(In thousands)**               | ** ** | **Amount**                      | ** ** | **Losses**                      | ** ** | **Amount** | ** ** | **Amount** | ** ** | **Losses** | ** ** | **Amount** | ** ** |
|                                  |       |                            |       |                            |       |   |   |   |   |   |   |   |   |
| Construction materials*               |       | $                               | 122,371    |                            | $          | (39,143 | ) | $ | 83,228 |   | $ | 124,145 |   | $ | (39,143 | ) | $ | 85,002 |   |
| Traffic safety services and equipment |       | 5,845                           |       | —                          |       | 5,845 |   | 5,845 |   | — |   | 5,845 |   |
|                                  |       | $                               | 128,216    |                            | $          | (39,143 | ) | $ | 89,073 |   | $ | 129,990 |   | $ | (39,143 | ) | $ | 90,847 |   |

 

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*During the fourth quarter of fiscal year 2013, the Company reduced goodwill for the settlement of a deferred acquisition liability, net of tax of $1.8 million originally recorded in connection with its acquisition of Stabler Companies Inc. in January 2008.

 

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*Other Intangible Assets*

 

The Company’s intangible assets consist of the following:

 
| ** **                       | ** ** | **February 28, 2013** | ** ** | **February 29, 2012** | ** ** |
|----------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                       | ** ** | **Gross**                       | ** ** | ** **                      | ** ** | **Net** | ** ** | **Gross** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **                       | ** ** | **Carrying**                    | ** ** | **Accumulated**                 | ** ** | **Carrying** | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | **Carrying** | ** ** |
| **(In thousands)**          | ** ** | **Amount**                      | ** ** | **Amortization**                | ** ** | **Amount** | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
|                             |       |                            |       |                            |       |   |   |   |   |   |   |   |   |
| Amortizable intangible assets    |       |                            |       |                            |       |   |   |   |   |   |   |   |   |
| Customer relationships           |       | $                               | 12,000     |                            | $          | (3,000 | ) | $ | 9,000 |   | $ | 12,000 |   | $ | (2,400 | ) | $ | 9,600 |   |
| Technology                       |       | 600                             |       | (200                            | )          | 400 |   | 600 |   | (160 | ) | 440 |   |
| Trademarks                       |       | 11,600                          |       | —                          |       | 11,600 |   | — |   | — |   | — |   |
|                             |       | 24,200                          |       | (3,200                          | )          | 21,000 |   | 12,600 |   | (2,560 | ) | 10,040 |   |
| Nonamortizable intangible assets |       |                            |       |                            |       |   |   |   |   |   |   |   |   |
| Trademarks                       |       | —                          |       | —                          |       | — |   | 16,304 |   | — |   | 16,304 |   |
| Total other intangible assets    |       | $                               | 24,200     |                            | $          | (3,200 | ) | $ | 21,000 |   | $ | 28,904 |   | $ | (2,560 | ) | $ | 26,344 |   |

 

As discussed in Note 1, “Nature of Operations and Summary of Significant Accounting Policies - Other Intangible Assets”, we recorded impairments of our trademarks of $4.7 million and $1.1 million in fiscal years 2013 and 2012, respectively.  The aggregate amortization expense related to amortizable intangible assets was $0.6 million for fiscal years 2013, 2012 and 2011.

 
| ** **                       | ** ** | **February 29, 2012** | ** ** | ** **       | ** ** | ** **     | ** ** | ** **                | ** ** | **February 28, 2013** | ** ** |
|----------------------------------|------------|---------------------------------|------------|------------------|------------|----------------|------------|---------------------------|------------|---------------------------------|------------|
| ** **                       | ** ** | **Net**                         | ** ** | ** **       | ** ** | ** **     | ** ** | **Reclassification**      | ** ** | **Net**                         | ** ** |
| ** **                       | ** ** | **Carrying**                    | ** ** | ** **       | ** ** | ** **     | ** ** | **to amortizable**   | ** ** | **Carrying**                    | ** ** |
| **(In thousands)**          | ** ** | **Amount**                      | ** ** | **Amortization** | ** ** | **Impairment** | ** ** | **intangible asset** | ** ** | **Amount**                      | ** ** |
| ** **                       | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **     | ** ** | ** **                | ** ** | ** **                      | ** ** |
| Amortizable intangible assets    |       |                            |       |             |       |           |       |                      |       | ** **                      |       |
| Customer relationships           |       | $                               | 9,600      |             | $          | (600           | )          | $                         | —     |                            | $          | — |   | $ | 9,000 |   |
| Technology                       |       | 440                             |       | (40              | )          | —         |       | —                    |       | 400                             |       |
| Trademarks                       |       | —                          |       | —           |       | —         |       | 11,600                    |       | 11,600                          |       |
|                             |       | 10,040                          |       | (640             | )          | —         |       | 11,600                    |       | 21,000                          |       |
| Nonamortizable intangible assets |       |                            |       |             |       |           |       |                      |       | ** **                      |       |
| Trademarks                       |       | 16,304                          |       | —           |       | (4,704         | )          | (11,600                   | )          | —                          |       |
| Total other intangible assets    |       | $                               | 26,344     |             | $          | —         |       | $                         | (4,704     | )                               | $          | (11,600 | ) | $ | 21,000 |   |

 

The estimated amortization expense for each of the five succeeding years and thereafter is as follows:

 
| **(In thousands)** | ** ** | ** ** | ** ** |
|-------------------------|------------|------------|------------|
|                    |       |       |       |
| Fiscal Year Ending      |       |       |       |
| 2014                    |       | $          | 811        |   |
| 2015                    |       | 811        |       |
| 2016                    |       | 811        |       |
| 2017                    |       | 811        |       |
| 2018                    |       | 811        |       |
| Thereafter              |       | 16,943     |       |
|                    |       | $          | 21,000     |   |

 

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**7.****             ****Other Noncurrent Assets**

 

The Company’s other noncurrent assets consist of the following:

 
| ** **                                                                                | ** ** | **February 28,** | ** ** | **February 29,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| **(In thousands)**                                                                   | ** ** | **2013**              | ** ** | **2012**              | ** ** |
|                                                                                      |       |                  |       |                  |       |
| Deferred financing fees (less current portion of   $3,658 and$4,882, respectively)        |       | $                     | 14,523     |                  | $          | 10,409 |   |
| Capitalized software (net of accumulated   amortization of $1,080 and $160, respectively) |       | 9,211                 |       | 11,719                |       |
| Cash value of life insurance (net of loans of $0 and   $3,000, respectively)              |       | 4,338                 |       | 1,006                 |       |
| Deferred stripping costs                                                                  |       | 3,868                 |       | 2,994                 |       |
| Other                                                                                     |       | 2,512                 |       | 3,232                 |       |
| Total other assets                                                                        |       | $                     | 34,452     |                  | $          | 29,360 |   |

 

As part of our debt refinancing transactions on March 15, 2012, we incurred and capitalized $15.0 million of deferred financing fees.  The Company recognized a loss on debt retirement of approximately $6.4 million related to the write-off of unamortized debt issuance costs.  The write-off of the debt issuance costs were recorded as interest expense.

 

During the fiscal year 2013, the Company recorded a $1.3 million reduction to capitalized software related to our new ERP system and a $0.2 million loss on the disposal of capitalized software.

 

**8. ****          ****Accrued Liabilities**

 

The Company’s accrued liabilities consist of the following:

 
| ** **                                                                    | ** ** | **February 28,** | ** ** | **February 29,** | ** ** |
|-------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| **(In thousands)**                                                       | ** ** | **2013**              | ** ** | **2012**              | ** ** |
|                                                                          |       |                  |       |                  |       |
| Interest                                                                      |       | $                     | 18,962     |                  | $          | 14,055 |   |
| Insurance                                                                     |       | 19,715                |       | 18,353                |       |
| Payroll and vacation                                                          |       | 8,281                 |       | 8,496                 |       |
| Other                                                                         |       | 3,671                 |       | 3,482                 |       |
| Withholding taxes                                                             |       | 1,640                 |       | 2,862                 |       |
| Billings in excess of costs and estimated earnings   on uncompleted contracts |       | 1,529                 |       | 255                   |       |
| Contract expenses                                                             |       | 209                   |       | 518                   |       |
| Deferred acquisition liability                                                |       | —                |       | 3,610                 |       |
| Total accrued liabilities                                                     |       | $                     | 54,007     |                  | $          | 51,631 |   |

 

**9. ****          ****Long-Term Debt**

 

The Company’s long-term debt consists of the following:

 
| ** **                            | ** ** | **February 28,** | ** ** | **February 29,** | ** ** |
|---------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| **(In thousands)**               | ** ** | **2013**              | ** ** | **2012**              | ** ** |
|                                  |       |                  |       |                  |       |
| ABL Facility                          |       | $                     | 24,314     |                  | $          | — |   |
| Notes due 2018                        |       | 250,000               |       | 250,000               |       |
| Secured notes due 2018                |       | 276,925               |       | —                |       |
| First lien term loan A & B   |       | —                |       | 145,383               |       |
| First lien revolving credit facility  |       | —                |       | 100,113               |       |
| Land, equipment and other obligations |       | 19,005                |       | 23,016                |       |
| Obligations under capital leases      |       | 7,743                 |       | 10,501                |       |
| Total debt                            |       | 577,987               |       | 529,013               |       |
| Less: Current portion                 |       | (11,342               | )          | (7,538                | )          |
| Total long-term debt                  |       | $                     | 566,645    |                  | $          | 521,475 |   |

 

**Refinancing**

 

On March 15, 2012, the Company completed the sale of the Secured Notes and entered into the ABL Facility. The Company utilized the proceeds from the sale of the Secured Notes and borrowings under the ABL Facility to repay all amounts outstanding under, and terminate, the Credit Agreement and certain other debt. We classified the components of the debt refinanced on March 15, 2012 as long-term in the consolidated balance sheet as of February 29, 2012.

 

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* *

*Asset Based Loan Facility*

 

Original Terms

 

On March 15, 2012, the Company entered into the ABL Facility with M&T, as the issuing bank, a lender, the swing lender, the agent and the arranger. The ABL Facility originally provided for maximum borrowings on a revolving basis of up to $170.0 million from time to time for general corporate purposes, including working capital. As discussed below, as a result of the third amendment to the ABL Facility, a maximum of $145.0 million may be borrowed under the ABL Facility. The ABL Facility includes a $15.0 million letter of credit sub-facility and a $20.0 million swing line sub-facility for short-term borrowings. The ABL Facility will mature on March 15, 2017. We classify borrowings under the ABL Facility as long-term due to our ability to maintain such borrowings on a long-term basis.

 

Borrowings under the ABL Facility (except swing line loans) bear interest at a rate per annum equal to, at the Company’s option, either (a) a base rate or (b) a LIBOR rate, in each case plus an applicable margin. Swing line loans bear interest at the base rate plus the applicable margin. The LIBOR margin for the ABL Facility is fixed at 5.00% (as of the date of the third amendment, discussed below) and the base rate margin is fixed at 3.00% (as of the date of the third amendment, discussed below). The ABL Facility also contains a commitment fee that is tied to the quarterly average Excess Availability, as defined in the ABL Facility Agreement as the borrowing base less the sum of letter of credit obligations and outstanding loans thereunder. The commitment fee ranges from 0.25% to 0.625%. From the commencement of the ABL Facility Agreement until September 7, 2012 (date of the first amendment, discussed below), the LIBOR margin was 2.75%, the base rate margin was 0.75% and the commitment fee was 0.50%.

 

Borrowings under the ABL Facility are guaranteed on a full and unconditional and joint and several basis by certain of the Company’s existing and future domestic subsidiaries and are secured, subject to certain permitted liens, by first-priority liens on the ABL Priority Collateral and by second-priority liens on the collateral securing the Secured Notes on a first-priority basis, except for certain real property.

 

Availability of ABL Facility and Covenants

 

The ABL Facility includes affirmative and negative covenants that, subject to significant exceptions, limit our ability and the ability of our guarantors to undertake certain actions, including, among other things, limitations on (i) the incurrence of indebtedness and liens, (ii) asset sales, (iii) dividends and other payments with respect to capital stock, (iv) acquisitions, investments and loans, (v) affiliate transactions, (vi) altering the business, (vii) issuances of equity that have mandatory redemption or put rights prior to the maturity of the ABL Facility and (viii) providing negative pledges to third parties. As of February 28, 2013, the Company was in compliance with these affirmative and negative covenants.

 

Prior to the third amendment to the ABL Facility, if the Company had less than $25.0

 

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million of availability under the ABL Facility at any point in time, it would be obligated to comply with a fixed charge coverage ratio. The third amendment to the ABL Facility, among other things, reduced the minimum excess availability threshold for the fixed charge coverage ratio until November 30, 2014, effectively increasing the Company’s short-term borrowing availability by allowing it to borrow up to the entire amount of the ABL Facility without needing to comply with a fixed charge coverage ratio.

 

If at any time after November 30, 2014 Excess Availability is less than the greater of (i) $25.0 million or (ii) 15% of the lesser of the commitments and the borrowing base, the Company must comply with a minimum fixed charge coverage ratio test of at least 1.0 to 1.0 for the immediately preceding four fiscal quarters or twelve consecutive months, as applicable. As of February 28, 2013, the Company’s Fixed Charge Coverage Ratio was below 1.0 to 1.0. The practical result will be that after November 30, 2014, so long as our fixed charge coverage ratio as calculated pursuant to the covenant remains less than 1.0 to 1.0, our available borrowings under the ABL Facility will be reduced by $25.0 million.

 

A fixed charge covenant ratio is also used to determine what advance rates apply in calculating the borrowing base under the ABL Facility, as well as whether the Company can make certain investments, acquisitions, restricted payments, repurchases or increases in the amount of cash interest payments on other indebtedness. As part of the first amendment to the ABL Facility entered into on September 7, 2012, the borrowing base formula under the ABL Facility became subject to adjustment based on the most recent fixed charge coverage ratio. If the calculation of the fixed charge coverage ratio is less than 1.0 to 1.0, the borrowing base will be equal to the sum of (a) the lesser of (i) $56.0 million (from $65 million) and (ii) 65% (from 75%) of the appraised value of the eligible real property, plus (b) 70% (from 85%) of the outstanding balance of eligible accounts receivable plus, (c) 40% (from 60%) of eligible inventory, minus (d) reserves imposed by the agent of the ABL Facility in the exercise of reasonable business judgment from the perspective of a secured asset-based lender, minus (e) reserves imposed by the agent to the ABL Facility with respect to branded inventory in its sole discretion.

 

The applicability of the Company’s fixed charge coverage ratio is conditional upon reaching the minimum excess availability. As a result of the third amendment, the Company has a minimum excess availability of zero (reduced from $25.0 million) until November 30, 2014, effectively eliminating the need to comply with a fixed charge coverage ratio. After this date, the Company may be subject to a fixed charge coverage ratio of 1.0 to 1.0, if its minimum excess availability reaches $25.0 million.

 

Amendment of ABL Facility

 

The ABL Facility contained a covenant that required us to deliver our fiscal year 2012 annual financial statements to the lender by May 29, 2012. On September 7, 2012, we entered into the first amendment to the ABL Facility to change the required delivery date of our audited February 29, 2012 financial statements and the required delivery date of our first and second quarter results and financial statements. Subsequent to the date of the first amendment, we required multiple extensions of time and ultimately filed our audited February 29, 2012 financial

 

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statements, our fiscal year 2013 first and second quarter results and financial statements on December 15, 2012, January 1, 2013 and February 28, 2013, respectively.

 

As part of the first amendment to the ABL Facility entered into on September 7, 2012, the borrowing base formula under the ABL Facility became subject to adjustment based on the most recent Fixed Charge Coverage Ratio as described above. We were subject to the adjusted borrowing base calculation as of February 28, 2013. The first amendment added a 1.25% floor to LIBOR for purposes of determining the interest rate applicable to LIBOR based borrowings, which was later removed in the third amendment discussed below.

 

In connection with the first amendment to the ABL Facility, we also agreed with M&T that, in the event M&T is unable to reduce its final participation in the ABL Facility to no more than $75.0 million during the primary syndication of the ABL Facility by December 15, 2012, M&T would be entitled to add or modify terms of the ABL Facility that were previously prohibited from being added or modified, including but not limited to the advance rates, certain covenants and the interest and fees payable. As of February 28, 2013, M&T has not syndicated the ABL Facility and has not modified the terms of the ABL Facility. See the discussion below concerning the potential modifications by M&T.

 

On December 7, 2012, we entered into the second amendment to the ABL Facility to change the required delivery date of our third quarter results and financial statements. Subsequent to the date of the second amendment, we required an extension of time and ultimately filed our third quarter results and financial statements on April 1, 2013. There can be no guarantee that the Company will not need to obtain similar amendments in the future. A failure to obtain such amendment could result in an acceleration of the Company’s indebtedness under the ABL Facility and a cross-default under the Company’s other indebtedness, including the Notes and Secured Notes.

 

On May 29, 2013, we entered into the third amendment to the ABL Facility. As discussed above, prior to the third amendment, if the Company had less than $25.0 million of availability under the ABL Facility at any point in time, it would be obligated to comply with a fixed charge coverage ratio. The third amendment, among other things, reduced the minimum excess availability to zero until November 30, 2014, effectively increasing the Company’s short-term borrowing availability by allowing it to borrow up to the entire amount of the ABL Facility without needing to comply with a fixed charge coverage ratio. The Company also agreed to the following additional amendments to the ABL Facility in the third amendment: (i) the aggregate overall amount available for borrowing under the ABL Facility was reduced from $170.0 million to $145.0 million; (ii) the interest rate margin added to applicable LIBOR based borrowings was increased to a fixed 5%; (iii) the interest rate margin added to applicable Base Rate borrowings was increased to a fixed 3%; (iv) the 1.25% floor applicable to LIBOR based borrowings was removed; and (v) to the extent that the Company disposes of assets that are ABL priority collateral and certain unencumbered assets, the net cash proceeds will be used to prepay outstanding borrowings under the ABL Facility and the overall ABL Facility will be reduced by $1 for each $1 of assets sold up to $15 million. The third amendment did not change other significant terms of the ABL Facility such as the maturity, borrowing base formula, and covenants, as applicable. Although the overall commitment was reduced from $170.0 million to

 

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$145.0 million, because the Company’s borrowing base was below $145.0 million at the time of the third amendment, such reduction had no impact on the Company’s short-term ability to borrow under the ABL Facility.

 

In connection with the third amendment, we also agreed with M&T that our board of directors will create a special committee consisting of our four non-employee directors, which we refer to as the special committee, that will engage an advisor to develop a business plan that focuses on cost reductions and operational efficiencies, which we refer to as the Plan. Upon the approval of the Plan by a majority of the members of the special committee, the Plan will be submitted to the entire board of directors for approval.  The vote of more than seven directors will be required to reject the Plan. The Plan must also be reasonably acceptable in scope, timing and process to M&T. Once the Plan is approved by the board of directors, the special committee will be authorized to oversee the implementation of the Plan by our management.

 

Potential Modification by M&T

 

In connection with the first amendment to the ABL Facility described above, in order to facilitate the syndication of the ABL Facility amongst additional lenders, the Company and M&T agreed that if M&T were unable to reduce its final loan commitments under the ABL Facility to no more than $75.0 million prior to December 15, 2012, M&T would be entitled to add to or modify the terms of the ABL Facility on a unilateral basis, including but not limited to adjusting the advance rates, adding or modifying certain covenants and increasing the interest and fees payable in order to facilitate its syndication efforts.  In connection with such modifications, there is no limit or ceiling to the interest rate M&T could charge. Notwithstanding these rights, M&T would not be able to do the following without the Company’s consent:

 

·      reduce the ABL Facility’s total amount to less than $170.0 million (as discussed above, this has been reduced to $145.0 million due to the third amendment);

·      impose a permanent fixed charge coverage ratio;

·      cause the springing fixed charge coverage ratio covenant in the ABL Facility to be greater than 1.00 to 1.00;

·      add a senior or total debt to EBITDA covenant with a less than 20% cushion from management projections;

·      add a net worth covenant with a less than 20% cushion from management projections;

·      restrict the Company’s ability to incur additional permitted indebtedness and related permitted liens for capital leases, purchase debt and sale-leaseback transactions to less than $35.0 million in the aggregate at any time;

·      if the Company’s fixed charge coverage ratio is 1.00 to 1.00 or greater, cause the advance rate for (a) eligible inventory to be less than 60%; (b) eligible accounts to be less than 85%; or (c) eligible real property to be less than the lower of (1) 75% of the appraised value thereof and (2) $65.0 million;

·      if the Company’s fixed charge coverage ratio is less than 1.00 to 1.00, cause the advance rate for (a) eligible inventory to be less than 40%; (b) eligible accounts to be less than 70%; or (c) eligible real property to be less than the lower of (1) 75% of the appraised value thereof and (2) $56.0 million; or

·      require that any of (a) Rock Solid Insurance Company, (b) South Woodbury L.P., (c) NESL II, LLC, (d) Kettle Creek Partners L.P. or (e) Kettle Creek Partners G.P., LLC guaranty the ABL Facility.

 

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As of February 28, 2013, despite M&T’s inability to successfully syndicate the ABL Facility, the terms of the ABL Facility have not been modified by M&T. However, should M&T choose to exercise its right to add or modify terms of the ABL Facility, borrowings under the ABL Facility may be subject to terms less favorable than the current terms of the ABL Facility which could negatively impact our financial position, cash flows and results of operations. Furthermore, such modifications may require us to renegotiate the terms of the ABL Facility or obtain additional financing. We may not be able to obtain such modifications or additional financing on commercially reasonable terms or at all. If we are unable to obtain such modifications or additional financing, we would have to consider other options, such as the sale of certain assets, sales of equity, and negotiations with our lenders to restructure our debt. The terms of our indebtedness may restrict, or market or business conditions may limit, our ability to do any or all of these things.

 

The Company agreed to pay $0.3 million in fees to effect the third amendment to the ABL Facility and as a result of the reduction in the maximum borrowings of the ABL Facility the Company will also expense $0.7 million of unamortized deferred debt issuance costs to interest expense.

 

Interest Rate and Availability

 

As of February 28, 2013, the weighted average interest rate on the ABL Facility was 4.0%. The effective interest rate, including all fees, for the ABL Facility was approximately 6.2% for fiscal year 2013. As discussed above, we recently amended our ABL Facility to fix the interest rate margin added to LIBOR based borrowings at 5.0%, fix the interest rate margin added to base rate borrowings at 3.0% and remove the 1.25% floor applicable to LIBOR based borrowings.

 

As of February 28, 2013, we had borrowed $24.3 million under the ABL Facility As of such date, the borrowing base was $109.7 million; provided, however, there was $84.7 million available to borrow because we were required to maintain at least $25 million of excess availability so that we do not trigger the fixed charge coverage ratio based covenant discussed above. We recently amended our ABL Facility to, among other things, reduce the overall commitment to $145.0 million and waive the $25.0 million minimum excess availability threshold for the fixed charge coverage ratio until November 30, 2014.

 

The third amendment did not change other significant terms of the ABL Facility such as the maturity, borrowing base formula, and covenants, as applicable.

 

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*Notes Due 2018*

 

In August 2010, the Company sold $250.0 million aggregate principal amount of the Notes.  Interest on the Notes is payable semi-annually in arrears on March 1 and September 1 of each year.  The proceeds from the issuance of Notes were used to pay down debt.  In fiscal year 2011, the Company recognized a loss on debt retirement of approximately $2.9 million relating to the write off of unamortized debt issuance costs associated with the components of outstanding debt that were paid down.  The write off of the debt issuance costs were recorded as a component of interest expense.  In connection with the issuance of the Notes, the Company incurred costs of approximately $8.3 million which were deferred and are being amortized on the effective interest method through the 2018 maturity date.

 

At any time prior to September 1, 2014, the Company may redeem all or part of the Notes at a redemption price equal to 100.0% of the principal amount plus accrued and unpaid interest and an applicable “make-whole” premium which is set forth in the indenture governing the Notes. On or after September 1, 2014, the Company 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 September 1 of the years indicated below:

 
| **Year**            | ** ** | **Percentage** | ** ** |
|---------------------|------------|----------------|------------|
| ** **          | ** ** | ** **     | ** ** |
| 2014                |       | 105.50         | %          |
| 2015                |       | 102.75         | %          |
| 2016 and thereafter |       | 100.00         | %          |

 

In addition, prior to September 1, 2013, the Company may redeem up to 35.0% of the aggregate principal Notes outstanding with the net cash proceeds from certain equity offerings at a redemption price equal to 111.0% of the principal amount thereof, together with accrued and unpaid interest. If the Company experiences a change of control, as outlined in the indenture, the Company may be required to offer to purchase the Notes at a purchase price equal to 101.0% of the principal amount, plus accrued interest.

 

The Notes are guaranteed on a full and unconditional, and joint and several basis, by certain of the Company’s existing and future domestic subsidiaries (the “Guarantors” as described in Note 18, “Condensed Issuer, Guarantor and Non-Guarantor Financial Information”).  The indenture governing the Notes contains affirmative and negative covenants that, among other things, limit the

 

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Company’s and its subsidiaries’ ability to incur additional debt, make restricted payments, dividends or other payments from subsidiaries to the Company, create liens, engage in the sale or transfer of assets and engage in transactions with affiliates.  The Company is not required to maintain any affirmative financial ratios or covenants.

 

The Indenture governing the Notes required that the Company file a registration statement with the Securities and Exchange Commission and exchange the Notes for new Notes having terms substantially identical in all material respects to the Notes. The Company filed its registration statement with the SEC for the Notes on August 29, 2011. The registration statement became effective on September 13, 2011, and the Company concluded the exchange offer on October 12, 2011.

 

*Secured Notes due 2018*

 

Interest on the Secured Notes is initially payable at 13.0% per annum, semi-annually in arrears on March 15 and September 15.  The Company will make each interest payment to the holders of record of the Secured Notes as of the immediately preceding March 1 and September 1. The Company used the proceeds from this offering to repay certain existing indebtedness and to pay related fees and expenses.  The Secured Notes will mature on March 15, 2018.

 

With respect to any interest payment date on or prior to March 15, 2017, the Company may, at its option, elect (an ‘‘Interest Form Election’’) to pay interest on the Secured Notes (i) entirely in cash (‘‘Cash Interest’’) or (ii) subject to any Interest Rate Increase (as defined below), initially at the rate of 4% per annum in cash (‘‘Cash Interest Portion’’) and 9% per annum by increasing the outstanding principal amount of the Secured Notes or by issuing additional paid in kind notes under the indenture on the same terms as the Secured Notes (‘‘PIK Interest Portion’’ or “PIK Interest”); provided that in the absence of an Interest Form Election, interest on the Secured Notes will be payable as PIK Interest.  At February 28, 2013, PIK interest was $23.3 million ($11.9 million was recorded as an increase to the Secured Notes and $11.4 million was recorded as a long-term obligation in Other liabilities).

 

With respect to any interest payment payable after March 15, 2017, interest will be payable solely in cash. In addition, at the beginning of and with respect to each 12-month period that begins on March 15, 2013, March 15, 2014 and March 15, 2015, the interest rate on the Secured Notes as of such date shall permanently increase by an additional 1.0% per annum (an ‘‘Interest Rate Increase’’) unless the Company delivers a written notice to the Trustee of the Company’s election for such 12-month period to either (x) alter the manner of interest payment on the Secured Notes going forward by increasing the Cash Interest Portion and decreasing the PIK Interest Portion in each case in effect with respect to the immediately preceding interest period for which any PIK Interest was paid prior to each such election by, in each case, 1.0% per annum or (y) pay interest on the Secured Notes for such 12-month period entirely in cash (a ‘‘12-Month Cash Election’’). In the event of a 12-Month Cash Election for any 12-month period prior to March 15, 2017, the interest rate on the Secured Notes applicable for such 12-month period shall be 1.0% less than the total interest rate applicable to the Secured Notes in effect with respect to the immediately preceding interest period for which any PIK Interest was paid. Any Interest Rate Increase shall be affected by increasing the PIK Interest Portion in effect with respect to the immediately preceding interest period for which any PIK Interest was paid prior to each such Interest Rate Increase. If the Company makes a 12-Month Cash Election for and in respect of the 12-month period beginning on March 15, 2016, the same interest rate will apply for and in respect of the 12-month period beginning on March 15, 2017.  The additional 1.0% per annum Interest Rate Increase will only apply to the three consecutive annual periods beginning March 15, 2013.

 

On March 4, 2013, the Company notified the trustee of its Secured Notes that it had selected to pay interest on the Secured Notes for the 12-month period commencing March 15, 2013 in the form of 5% cash payment and 8% payment in kind, which represents $14.9 million and $23.6 million, respectively.

 

At any time prior to March 15, 2015, the Company may redeem at its option up to 35% of the Secured Notes with the net cash proceeds from certain public equity offerings at a redemption price equal to 113.0% of the principal amount outstanding, plus accrued and unpaid interest. The Company may also redeem some or all of the Secured Notes at any time prior to March 15, 2015 at a redemption price equal to 100.0% of the principal amount of the outstanding Secured Notes, plus accrued and unpaid interest, plus a ‘‘make-whole’’ premium. On and after March 15, 2015, the Secured Notes will be redeemable, in whole or in part, at the redemption prices specified as follows:

 
| **Year**            | ** ** | **Percentage** | ** ** |
|---------------------|------------|----------------|------------|
| ** **          | ** ** | ** **     | ** ** |
| 2015                |       | 106.50         | %          |
| 2016                |       | 103.25         | %          |
| 2017 and thereafter |       | 100.00         | %          |

 

In addition, the Company may be required to make an offer to purchase the Secured Notes upon the sale of certain assets or upon a change of control. The Company will be required to redeem certain portions of the Secured Notes for tax purposes at the end of the first accrual period ending after the fifth anniversary of the Secured Notes issuance and each accrual period thereafter.

 

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The Secured Notes are guaranteed on a full and unconditional, and joint and several basis, by certain of the Company’s existing and future domestic subsidiaries (the “Guarantors” as described in Note 18, “Condensed Issuer, Guarantor and Non-Guarantor Financial Information”).  The Secured Notes and related guarantees are senior secured obligations of the Company and the Guarantors that rank equally in right of payment with all existing and future senior debt of the Company and the Guarantors, including the Notes and ABL Facility, and senior to all existing and future subordinated debt of the Company and Guarantors.  The Secured Notes and related guarantees are secured, subject to certain permitted liens and except for certain excluded assets, by first-priority liens on substantially all of the Company’s and Guarantors’ personal property and certain owned and leased real property and second-priority liens on certain real property and substantially all of the Company’s and Guarantors’ accounts receivable, inventory and deposit accounts and related assets and proceeds of the foregoing that secure the ABL Facility on a first-priority basis.

 

The indenture for the Secured Notes contains restrictive covenants that limit the Company’s ability and the ability of its subsidiaries that are restricted under the indenture to, among other things, incur additional debt, pay dividends or make distributions, repurchase capital stock or make other restricted payments, make certain investments, incur liens, merge, amalgamate or consolidate, sell, transfer, lease or otherwise dispose of all or substantially all assets and enter into transactions with affiliates.

 

We were required to file a registration statement with the Securities and Exchange Commission with respect to a registered offer to exchange the Secured Notes for new Secured Notes having  terms substantially identical in all material respects to the Secured Notes by March 10, 2013 or we will be subject to penalty interest. The penalty interest will increase 25 basis points each quarter for four consecutive quarters until it reaches 1% and will remain at 1% until we complete the registration of the Secured Notes.  We have not currently registered the Secured Notes

 

*First lien term loan A & B*

 

On January 11, 2008, the Company entered into a second amended and restated credit agreement that provided two term loans and a second lien facility.  The term loans were used to acquire equity and assets of Stabler Companies Inc. and refinance certain existing indebtedness.  The term loans A and B were secured by a first priority lien on appraised real estate, mineral rights and fixed assets.  The second lien facility was prepaid during fiscal year 2011 with proceeds from the issuance of the Notes as described above.  The Company was required to meet certain financial covenants, including maintaining certain leverage and coverage ratios, minimum net worth requirements and capital expenditure and lease payment limitations under the second amended and restated credit agreement.

 

Pricing on term loan A was tied to a performance grid based on the ratio of total debt to earnings before interest, taxes, depreciation and depletion, amortization and rent expense (“EBITDAR”), as defined in the second amended and restated credit agreement. LIBOR margins for the term loan A ranged from 2.00% to 3.50% for fiscal years 2012 and 2011.  Prime Rate margins ranged from 0% to 1.50% for fiscal years 2012 and 2011.  Additionally, the Company was subject to a 1.00% floor on the LIBOR rate for LIBOR-based borrowings under this arrangement for fiscal years 2012 and 2011.  Term loan A had $78.1 million outstanding and the LIBOR margin was 3.50% and the Prime Rate margin was 1.50% as of February 29, 2012.  The effective interest rate on the term loan A was approximately 4.50% and 3.79% for fiscal years 2012 and 2011, respectively.

 

Pricing on term loan B was tied to a performance grid based on the ratio of total debt to EBITDAR. LIBOR margins for the term loan B ranged from 3.50% to 4.00% for fiscal years 2012 and 2011.  Prime Rate margins ranged from 1.50% to 2.00% for fiscal years 2012 and 2011.  Additionally, the Company was subject to a 1.00% floor on the LIBOR rate for LIBOR-based borrowings under this arrangement for fiscal years 2012 and 2011.  The term loan B had $67.3 million outstanding and the LIBOR margin was 4.00%, and the Prime Rate was 2.00% as of February 29, 2012.  The effective interest rate on the term loan B was approximately 5.02% and 4.31% for fiscal years 2012 and 2011, respectively.

 

*First lien revolving credit facility*

 

On January 11, 2008, the Company entered into a second amended and restated credit agreement with a $110.0 million, secured revolving credit facility.  On May 27, 2010, the Company amended its second amended and restated credit agreement to adjust certain leverage ratios, limitations on operating lease expense and also increased the total amount available under the revolving credit facility to $135.0 million.  Availability under the revolver was restricted to a borrowing base equal to the sum of 85% of accounts receivable less accounts over 120 days and 60% of inventory.  Pricing on the revolver is tied to a performance grid based on the ratio of total Leverage to EBITDAR, as defined in the agreement. LIBOR margins for the revolver ranged from 2.00% to 3.50%.  Prime Rate margins for the revolver ranged from 0% to 1.50%.  Additionally, the Company was subject to a 1.00% floor on the LIBOR rate for LIBOR-based borrowings under this arrangement for fiscal years 2012 and 2011.  The LIBOR margin was 3.50% as of February 29, 2012.  The Prime Rate margin was 1.50% as of February 29, 2012.  The effective interest rate was

 

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4.58% and 3.99% for fiscal years 2012 and 2011, respectively.  The Company was required to meet certain financial covenants, including maintaining certain leverage and coverage ratios, minimum net worth requirements and capital expenditure and lease payment limitations under the second amended and restated credit agreement.

 

The Company was subject to certain financial covenants related to its term loan A, term loan B and revolving credit facility, including maintaining certain leverage and coverage ratios, minimum net worth requirements and capital expenditure and lease payment limitations.

 

On August 26, 2011, the Company entered into the eleventh amendment to its Credit Agreement.  The eleventh amendment allowed for additional secured borrowings under a new secured credit facility of up to $20.0 million, increased the leverage covenant from 5.60 - 1.00 to 5.90 - 1.00 through maturity, increased the amount of annual capital expenditures as defined in the Credit Agreement from $25.0 million to $30.0 million and increased the aggregate principal amount of outstanding borrowings under the first lien revolving credit facility allowable during the clean down period from $75.0 million to $85.0.  On August 29, 2011, the Company entered into a new $20.0 million secured credit facility which matured on March 1, 2012 and bore interest at LIBOR plus a 5.0% margin.  Certain properties not previously encumbered were used as collateral under this $20.0 million secured credit facility.

 

The Company obtained multiple waivers and amendments related to covenant defaults during fiscal years 2011 and 2010.  The more significant amendments related to defaults of the net worth covenant, leverage ratios, limitations on operating lease expense and timely completion of the financial statements.  In addition, the Company obtained amendments to the first lien credit facility, including the term loans and revolving credit facility which adjusted covenants for future periods and allowed for the issuance of the Notes in August 2010.  Where appropriate, the Company recorded fees paid to obtain the waivers and amendments as deferred financing fees and amortized the amounts over the remaining life of the associated financing arrangements.

 

*Land, equipment and other obligations*

 

The Company has various notes, mortgages and other financing arrangements resulting from the purchase of principally land and equipment.  All loans provide for at least annual payments and are principally secured by the land and equipment acquired.  The Company incurred $5.8 million and $4.4 million of new obligations under various financing arrangements related to equipment, assets and other in fiscal years 2013 and 2012, respectively.

 

Obligations include loans of $7.5 million and $8.2 million as of February 28, 2013 and February 29, 2012, respectively, secured by certain facilities at 3.5% as of February 28, 2013 and 7.3% as of February 29, 2012.

 

From 1998 through 2005, the Company issued four revenue bonds to different industrial development authorities for counties in Pennsylvania in order to fund the acquisition and installation of plant and equipment.  The original issuance of these bonds totaled $25.3 million with dates of maturity through May 2022.  The Company maintains irrevocable, transferable letters of credit equal to the approximate carrying value of each bond, in total for $5.4 million and $10.6 million as of February 28, 2013 and February 29, 2012, respectively.  The effective interest rate on these bonds ranged from 0.23% to 0.41% for fiscal year 2013 and 0.28% to 0.46% for fiscal year 2012.  The Company is subject to annual principal maturities each year which is funded on either a quarterly or monthly basis, depending upon the terms of the original agreement.  The Company’s plant and equipment provide collateral under these borrowings and for the letters of credit.

 

Obligations include a cash overdrafts liability of $2.2 million; as disclosed in Note 1, “Nature of Operations and Summary of Significant Accounting Policies - Cash and Cash Equivalents and Restricted Cash”; which is included within the current portion of long-term debt as of February 28, 2013.

 

The remaining obligations of $3.9 million and $4.2 million as of February 28, 2013 and February 29, 2012, respectively, are at weighted average interest rates of 5.6% and 4.4%, respectively.

 

*Obligations under capital lease*

 

The Company has various arrangements for the lease of machinery and equipment which qualify as capital leases. These arrangements typically provide for monthly payments, some of which include residual value guarantees if the Company were to terminate the arrangement during certain specified periods of time for each underlying asset under lease.

 

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*Maturity*

 

Our long-term debt matures as follows:

 
| **(In thousands)** | ** ** | ** ** | ** ** |
|-------------------------|------------|------------|------------|
|                    |       |       |       |
| Fiscal Year Ending      |       |       |       |
| 2014                    |       | $          | 11,342     |   |
| 2015                    |       | 4,045      |       |
| 2016                    |       | 2,701      |       |
| 2017                    |       | 1,851      |       |
| 2018                    |       | 25,733     |       |
| Thereafter              |       | 532,315    |       |
|                    |       | $          | 577,987    |   |

 

*Fair value*

 

Using information available from recent financings, current borrowings and publicly available information on the Notes, which included quoted market prices for the same or similar issues or on the current rates offered for debt of the same remaining maturities, the Company has determined the fair value of long term debt as of February 28, 2013 and February 29, 2012 is as follows:

 
| ** **                                    | ** ** | **February 28,** | ** ** | **February 29,** | ** ** |
|-----------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| **(In thousands)**                       | ** ** | **2013**              | ** ** | **2012**              | ** ** |
|                                          |       |                  |       |                  |       |
| Carrying value (including current maturities) |       | $                     | 577,987    |                  | $          | 529,013 |   |
| Fair value (including current maturities)     |       | 548,730               |       | 490,194               |       |
|                                               |            |                       |            |                       |            |  |  |

 

**10.****      ****Income Taxes**

 

The components of the U.S. federal and state income tax (benefit) expense for fiscal years 2013, 2012 and 2011 consisted of:

 
| **(In thousands)** | ** ** | **2013** | ** ** | **2012** | ** ** | **2011** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|----------|------------|
|                    |       |     |       |     |       |     |       |
| **Current**             |       |     |       |     |       |     |       |
| U.S. federal            |       | $        | —     |     | $          | —   |       | $ | (3,902 | ) |
| State                   |       | (11      | )          | 14       |       | 292      |       |
| Current                 |       | (11      | )          | 14       |       | (3,610   | )          |
| **Deferred**            |       |     |       |     |       |     |       |
| U.S. federal            |       | (35,878  | )          | (17,637  | )          | (940     | )          |
| State                   |       | (5,669   | )          | 1,226    |       | 72       |       |
| Deferred                |       | (41,547  | )          | (16,411  | )          | (868     | )          |
| Income tax benefit      |       | $        | (41,558    | )        | $          | (16,397  | )          | $ | (4,478 | ) |

 

The detail of (benefit) expense for income taxes and a reconciliation of the statutory to effective tax benefit for fiscal years 2013, 2012 and 2011 are as follows:

 
| **(In thousands)**             | ** ** | **2013** | ** ** | **2012** | ** ** | **2011** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                |       |     |       |     |       |     |       |
| Federal statutory tax               |       | $        | (34,192    | )        | $          | (14,639  | )          | $ | (3,588 | ) |
| State taxes, net of federal benefit |       | (7,987   | )          | (2,298   | )          | (2,719   | )          |
| Depletion                           |       | (2,223   | )          | (2,187   | )          | (1,761   | )          |
| Tax contingencies                   |       | 11       |       | (193     | )          | 374      |       |
| Valuation allowance, net            |       | 2,879    |       | 3,912    |       | 3,883    |       |
| Other                               |       | (46      | )          | (992     | )          | (667     | )          |
| Income tax benefit                  |       | $        | (41,558    | )        | $          | (16,397  | )          | $ | (4,478 | ) |

 

The Company’s effective tax rate for each of 2013, 2012 and 2011 differs from the U.S. federal statutory rate of 35% due principally to state income taxes, percentage depletion deducted for tax purposes but not for financial reporting purposes, and the increase in valuation allowance.  Included in the fiscal year 2013 deferred state tax benefit and state taxes, net of federal benefit amounts in the tables above is a discrete out-of-period tax benefit of $1.2 million due to differences in our state apportionment calculation when we finalized our tax returns for fiscal year 2012 in November 2012. Also included in the fiscal year 2013 deferred federal and state tax

 

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benefit, net of federal benefit amounts in the tables above, is $0.5 million of expense related to the tax treatment of certain leases.  The Company understated the deferred tax liability in prior periods by $1.1 million. The out-of-period adjustments are not material to the prior or current consolidated financial statements.

 

Deferred income taxes arise due to certain items being includable in the determination of taxable income in periods different than for financial reporting purposes.  The tax effect of significant types of temporary differences and carry forwards that gave rise to our deferred tax assets and liabilities consist of the following:

 
| ** **                                | ** ** | **February 28,** | ** ** | **February 29,** | ** ** |
|-------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| **(In thousands)**                   | ** ** | **2013**              | ** ** | **2012**              | ** ** |
|                                      |       |                  |       |                  |       |
| **Deferred tax assets related to**        |       |                  |       |                  |       |
| Inventory                                 |       | $                     | 1,492      |                  | $          | 5,964 |   |
| Defined benefit plans                     |       | 1,782                 |       | 1,690                 |       |
| Accrued expenses                          |       | 4,312                 |       | 5,812                 |       |
| Workers’ compensation                |       | 7,928                 |       | 7,524                 |       |
| Bad debt reserve                          |       | 1,386                 |       | 1,329                 |       |
| Reclamation                               |       | 6,166                 |       | 5,375                 |       |
| Leases                                    |       | 3,742                 |       | 4,178                 |       |
| Other                                     |       | 2,021                 |       | 3,725                 |       |
| Tax loss carryforwards                    |       | 69,364                |       | 29,669                |       |
| Total deferred tax assets                 |       | 98,193                |       | 65,266                |       |
| **Deferred tax liabilities related   to** |       |                  |       |                  |       |
| Depreciable and amortizable assets        |       | (121,675              | )          | (133,700              | )          |
| Leases                                    |       | —                |       | (651                  | )          |
| Other                                     |       | (153                  | )          | (357                  | )          |
| Total deferred tax liabilities            |       | (121,828              | )          | (134,708              | )          |
| Less: Valuation allowance                 |       | (16,422               | )          | (11,213               | )          |
| Net deferred tax liabilities              |       | $                     | (40,057    | )                     | $          | (80,655 | ) |

 

Deferred income taxes have been classified in the accompanying consolidated balance sheets as follows: 

 
| ** **                            | ** ** | **February 28,** | ** ** | **February 29,** | ** ** |
|---------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| **(In thousands)**               | ** ** | **2013**              | ** ** | **2012**              | ** ** |
|                                  |       |                  |       |                  |       |
| Deferred tax assets - current         |       | $                     | 12,386     |                  | $          | 16,019 |   |
| Deferred tax liabilities - noncurrent |       | (52,443               | )          | (96,674               | )          |
| Net deferred tax liabilities          |       | $                     | (40,057    | )                     | $          | (80,655 | ) |

 

During fiscal year 2013, we increased our valuation allowance by $5.2 million.  The increase to the valuation allowance was primarily the result of the current year net operating losses for state tax purposes.  A component of the current year movement in the valuation allowance was a decrease to certain long-term deferred tax assets primarily related to reclamation of $1.5 million due to scheduling of deferred tax liabilities as a source of income to take into account new information regarding certain trademarks as definite lived intangibles.

 

The initial $5.5 million non-cash charge to establish the valuation allowance was recorded in fiscal year 2011.  The purpose of the initial recording was to establish the valuation allowance against certain deferred tax assets primarily related to state net operating losses.  In assessing whether the deferred tax assets may be realized, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized based upon an assessment of both positive and negative evidence as prescribed by applicable accounting guidance, for example recent operating results and permanent differences for tax purposes.  The Company’s cumulative loss in the most recent three-year period, inclusive of the loss for the year ended February 28, 2013, represented sufficient negative evidence to require a valuation allowance under the provisions of ASC 740 Income taxes.  The Company intends to maintain a state valuation allowance until sufficient positive evidence exists to support its reversal.  Although realization is not assured, the Company has concluded that the remaining deferred tax assets as of February 28, 2013 will be realized based on the scheduling of deferred tax liabilities.  The amount of the deferred tax assets actually realized, however, could vary if there are differences in the timing or amount of future reversals of existing deferred tax liabilities. Should the Company determine 

 

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that it would not be able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made.

 

The Company has U.S. federal net operating losses that will begin to expire in 2027 totaling approximately $139.7 million and $50.5 million as of February 28, 2013 and February 29, 2012, respectively.  The Company has state net operating losses that will begin to expire in 2014 of approximately $209.6 million and $138.8 million as of February 28, 2013 and February 29, 2012, respectively, of which $183.7 million and $129.5 million, respectively, relates to Pennsylvania.  The Pennsylvania state net operating losses will begin to expire in 2020.

 

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for fiscal years 2013, 2012 and 2011 is as follows:

 
| **(In thousands)**                                               | ** ** | **2013** | ** ** | **2012** | ** ** | **2011** | ** ** |
|-----------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                  |       |     |       |     |       |     |       |
| Beginning balance                                                     |       | $        | 2,509      |     | $          | 2,379    |       | $ | 1,035 |   |
| Gross increases - current period tax positions                        |       | 455      |       | 196      |       | 1,344    |       |
| Gross increases - prior period tax positions                          |       | 436      |       | 720      |       | —   |       |
| Settlements with taxing authorities/lapse of   statute of limitations |       | —   |       | (786     | )          | —   |       |
| Ending balance                                                        |       | $        | 3,400      |     | $          | 2,509    |       | $ | 2,379 |   |

 

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $2.9 million and $2.4 million as of February 28, 2013 and February 29, 2012.  During fiscal year 2012 the IRS’s Tax Exempt and Government Entities Division initiated and completed an examination of the Company’s federal income tax returns specifically related to revenue bonds issued by the Company.  As a result of the examination, the Company agreed to pay a settlement amount of $0.1 million to the IRS.

 

We recognize interest and penalties related to unrecognized tax benefits as a component of tax expense.  During fiscal years 2013, 2012 and 2011 interest and penalties accrued were not material.

 

We file annual tax returns in the various federal, state and local income taxing jurisdictions in which we operate.  These tax returns are subject to examination and possible challenge by the taxing authorities.  Positions challenged by the taxing authorities may be settled or appealed by the Company.  The Company’s number of open tax years varies by jurisdiction.  With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non U.S. income tax examinations by tax authorities for years before 2008.

 

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**11. ****   ****Retirement and Benefit Programs**

 

Substantially all employees are covered by a defined contribution plan, a defined benefit plan, a collectively bargained multiemployer plan, or a noncontributory profit sharing plan.

 

*Multiemployer Pension Plans*

 

The Company participates in several multiemployer pension plans, which provide defined benefits to certain employees covered by labor union contracts.  As of February 28, 2013, approximately 31% of our workforce was covered by collective bargaining agreements.  The zone status is based on information that the Company received from the plan and is certified by the plan’s actuary: Green represents a plan that is more than 80% funded; Yellow represents a plan that is between 65% and 80% funded; and Red represents a plan that is less than 65% funded.

 

A summary of the multiemployer plans is as follows:

 
| ** **  | ** ** | ** **         | ** ** | ** **                             | ** ** | ** **              | ** ** | **Contributions by the Company** | ** ** | ** **          | ** ** | ** **        | ** ** |
|-------------|------------|--------------------|------------|----------------------------------------|------------|-------------------------|------------|-------------------------------------------------|------------|---------------------|------------|-------------------|------------|
| ** **  | ** ** | ** **         | ** ** | ** **                             | ** ** | ** **              | ** ** | **for the year ended**           | ** ** | **Subject to** | ** ** | ** **        | ** ** |
| ** **  | ** ** | ** **         | ** ** | **Pension Protection**            | ** ** | **(In thousands)** | ** ** | **Financial**                                   | ** ** | ** **          | ** ** |
| **Pension** | ** ** | **Identification** | ** ** | **Act Zone Status (1)** | ** ** | **February**            | ** ** | **February**                                    | ** ** | **February**        | ** ** | **Improvement**   | ** ** | **Surcharge** | ** ** |
| **Fund**    | ** ** | **Number**         | ** ** | **2012**                               | ** ** | **2011**                | ** ** | **28, 2013**                               | ** ** | **29, 2012**   | ** ** | **28, 2011** | ** ** | **Plan** | ** ** | **Imposed** | ** ** |
|        |       |               |       |                                   |       |                    |       |                                            |       |                |       |              |       |   |   |   |   |
| A           |       | 25-6029946         |       | Red                                    |       | Red                     |       | $                                               | 1,060      |                | $          | 1,025             |       | $ | 966 |   | Yes |   | Yes |   |
| B           |       | 25-1046087         |       | Red                                    |       | Red                     |       | 536                                             |       | 519                 |       | 438               |       | Yes |   | Yes |   |
| C           |       | 36-6052390         |       | Green                                  |       | Green                   |       | 329                                             |       | 343                 |       | 337               |       | No |   | No |   |
| D           |       | 15-0614642         |       | Red                                    |       | Red                     |       | 202                                             |       | 182                 |       | 126               |       | Yes |   | Yes |   |
| E           |       | 51-6031768         |       | Red                                    |       | Red                     |       | —                                          |       | —              |       | 8                 |       | Yes |   | Yes |   |
| F           |       | 16-0845094         |       | Yellow                                 |       | Yellow                  |       | 130                                             |       | 121                 |       | 110               |       | Yes |   | Yes |   |
| G           |       | 53-0181657         |       | Green                                  |       | Green                   |       | 32                                              |       | 32                  |       | 24                |       | No |   | No |   |
| H           |       | 23-6262789         |       | Yellow                                 |       | Yellow                  |       | 198                                             |       | 221                 |       | 244               |       | No |   | No |   |
| I           |       | 23-6580323         |       | Green                                  |       |                    |       | 32                                              |       | —              |       | —            |       | No |   | No |   |
| J           |       | 23-6405239         |       | Green                                  |       |                    |       | 25                                              |       | —              |       | —            |       | No |   | No |   |
|        |       |               |       |                                   |       |                    |       | $                                               | 2,544      |                | $          | 2,443             |       | $ | 2,253 |   |   |   |   |   |

 

A                           Western Pennsylvania Teamsters and Employers Pension Fund.  The Collective Bargaining Agreement with this group expires on April 30, 2014.

 

B                           Southwestern Pennsylvania and Western Maryland Area Teamsters and Employers Pension Fund.  The Collective Bargaining Agreement with this group expires on April 30, 2014.

 

C                           Central Pension Fund of the International Union of Operating Engineers and Participating Employers.  The Collective Bargaining Agreements with this group expires on various dates through 2016.

 

D                           Upstate New York Engineers Benefit Fund Local 17.  The Collective Bargaining Agreements with this group expires on various dates through 2016.

 

E                            Laborers Local No. 91 Pension Fund.  The Collective Bargaining Agreement for this group expired on March 31, 2012.

 

F                             Buffalo Laborers Pension Fund Local 210.  The Collective Bargaining Agreement with this group expires on various dates through 2014.

 

G                           National Electric Benefit Fund.  The Collective Bargaining Agreement with this group expires on December 31, 2014.

 

H                          Central Pennsylvania Teamsters.  The Collective Bargaining Agreement with this group expires on January 31, 2016.

 

I                               Laborers Local 158 Health, Welfare & Pension Funds.  The Collective Bargaining Agreement with this group expires on April 30, 2016.

 

J                               542 International Union of Operating Engineers Benefit Funds.  The Collective Bargaining Agreement with this group expires on April 30, 2014.

 

----

(1)       The Pension Protection Act Zone Status defines the zone status as follows: green - healthy, yellow - endangered, orange - seriously endangered and red - critical.

 

The Company provided more than 5% of the total contributions to B - Southwestern Pennsylvania and Western Maryland Area Teamsters and Employers Pension Fund during the Plan’s years ended June 30, 2012, 2011, and 2010.  It did not provide more than 5% of the total contributions for any of the other multiemployer plans.  The contribution amounts were determined by the union contracts and the Company does not administer or control the funds.  However, in the event of plan terminations or Company withdrawal from the plans, the Company may be liable for a portion of the plans’ unfunded vested benefits, the amount of which, if any, has not been determined.  The Company presently has no plans to withdraw from these plans.

 

*Defined Benefit Plans*

 

The Company has two defined benefit pension plans covering certain union employees covered by labor union contracts.  The 

 

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benefits are based on years of service.  The funded status reported on the balance sheets as of February 28, 2013 and February 29, 2012 was measured as the difference between the fair value of plan assets and the benefit obligation on a plan-by-plan basis.  Actuarial gains and losses are generally amortized over the average remaining service life of the Company’s active employees.  The components of net pension expense are as follows:

 
| ** **                                                                                        | ** ** | **Year Ended** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|---------------------|------------|
| ** **                                                                                        | ** ** | **February**        | ** ** | **February** | ** ** | **February** | ** ** |
| **(In thousands)**                                                                           | ** ** | **28, 2013**   | ** ** | **29, 2012** | ** ** | **28, 2011** | ** ** |
|                                                                                              |       |                |       |   |   |   |   |
| **Net periodic benefit cost**                                                                     |       |                |       |   |   |   |   |
| Service cost                                                                                      |       | $                   | 271        |   | $ | 216 |   | $ | 203 |   |
| Interest cost                                                                                     |       | 396                 |       | 438 |   | 434 |   |
| Expected return on plan assets                                                                    |       | (636                | )          | (618 | ) | (559 | ) |
| Amortization of prior service cost                                                                |       | 59                  |       | 62 |   | 85 |   |
| Recognized net actuarial loss                                                                     |       | 248                 |       | 116 |   | 123 |   |
| Total pension expense                                                                             |       | $                   | 338        |   | $ | 214 |   | $ | 286 |   |
|                                                                                              |       |                |       |   |   |   |   |
| **Other changes in plan assets and   benefit obligations recognized in other comprehensive loss** |       |                |       |   |   |   |   |
| Net loss (gain)                                                                                   |       | $                   | 434        |   | $ | 1,504 |   | $ | (87 | ) |
| Changes due to plan amendments                                                                    |       | 218                 |       | — |   | — |   |
| Amortization of prior service cost                                                                |       | (59                 | )          | (62 | ) | (85 | ) |
| Amortization of net actuarial loss                                                                |       | (248                | )          | (116 | ) | (123 | ) |
| Total recognized in accumulated other   comprehensive loss                                        |       | 345                 |       | 1,326 |   | (295 | ) |
| Total recognized net periodic benefit cost and   accumulated other comprehensive loss             |       | $                   | 683        |   | $ | 1,540 |   | $ | (9 | ) |

 

The following table sets forth the plans’ benefit obligation, fair value of plan assets and funded status as of February 28, 2013 and February 29, 2012:

 
| **(In thousands)**                            | ** ** | **2013** | ** ** | **2012** | ** ** |
|----------------------------------------------------|------------|----------|------------|----------|------------|
|                                               |       |     |       |     |       |
| **Change in benefit obligation**                   |       |     |       |     |       |
| Benefit obligation at beginning of year            |       | $        | 9,620      |     | $          | 8,238 |   |
| Service cost                                       |       | 271      |       | 216      |       |
| Interest cost                                      |       | 396      |       | 438      |       |
| Actuarial loss                                     |       | 274      |       | 1,204    |       |
| Plan amendment                                     |       | 218      |       | —   |       |
| Benefits paid                                      |       | (480     | )          | (476     | )          |
| Benefit obligation at end of year                  |       | 10,299   |       | 9,620    |       |
| **Change in plan assets**                          |       |     |       |     |       |
| Fair value of plan assets at beginning of year     |       | 8,095    |       | 7,949    |       |
| Actual return on plan assets                       |       | 476      |       | 318      |       |
| Employer contributions                             |       | 267      |       | 304      |       |
| Benefits paid                                      |       | (480     | )          | (476     | )          |
| Fair value of plan assets at end of year           |       | 8,358    |       | 8,095    |       |
| Funded status at end of year                       |       | $        | (1,941     | )        | $          | (1,525 | ) |
| Amounts recognized in the balance sheet consist of |       |     |       |     |       |
| Noncurrent assets                                  |       | $        | —     |     | $          | 86 |   |
| Noncurrent liabilities                             |       | (1,941   | )          | (1,611   | )          |
| Net amount recognized                              |       | $        | (1,941     | )        | $          | (1,525 | ) |

 

The accumulated benefit obligation for the plans was $10.1 million and $9.6 million as of February 28, 2013 and February 29, 2012, respectively.

 

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The amounts in accumulated other comprehensive loss that have not yet been recognized as a component of net period benefit cost as of February 28, 2013, February 29, 2012 and February 28, 2011 are as follows:

 
| **(In thousands)**           | ** ** | **2013** | ** ** | **2012** | ** ** | **2011** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                              |       |     |       |     |       |     |       |
| Unrecognized net actuarial losses |       | $        | 3,672      |     | $          | 3,491    |       | $ | 2,103 |   |
| Unrecognized prior service costs  |       | 388      |       | 223      |       | 285      |       |
|                              |       | $        | 4,060      |     | $          | 3,714    |       | $ | 2,388 |   |

 

The estimated amount that will be amortized from accumulated other comprehensive loss into net periodic benefit cost related to unrecognized net actuarial losses and prior service costs during fiscal year 2014 is approximately $0.3 million.

 

Weighted average assumptions used to determine benefit obligations as of February 28, 2013, February 29, 2012 and February 28, 2011 were as follows:

 
| ** **                     | ** ** | **2013** | ** ** | **2012** | ** ** | **2011** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                           |       |     |       |     |       |     |       |
| Discount rate                  |       | 4.00     | %          | 4.25     | %          | 5.50     | %          |
| Expected return on plan assets |       | 8.00     | %          | 8.00     | %          | 8.00     | %          |

 

Weighted average assumptions used to determine net periodic pension expense were as follows:

 
| ** **                     | ** ** | **2013** | ** ** | **2012** | ** ** | **2011** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                           |       |     |       |     |       |     |       |
| Discount rate                  |       | 4.25     | %          | 5.50     | %          | 5.75     | %          |
| Expected return on plan assets |       | 8.00     | %          | 8.00     | %          | 8.00     | %          |

 

The Company’s overall expected long-term rate of return on assets is 8.0%.  The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories.  The return is based exclusively on historical returns, without adjustments.

 

The asset allocations of the plans as of February 28, 2013 and February 29, 2012 were as follows:

 
| ** **           | ** ** | **2013**   | ** ** | **2012**   | ** ** |
|----------------------|------------|------------|------------|------------|------------|
| **Asset class** | ** ** | **Target** | ** ** | **Actual** | ** ** | **Target** | ** ** | **Actual** | ** ** |
|                 |       |       |       |       |       |   |   |   |   |
| Equity securities    |       | 59         | %          | 58         | %          | 49 | % | 55 | % |
| Debt securities      |       | 41         | %          | 42         | %          | 51 | % | 45 | % |
|                 |       | 100        | %          | 100        | %          | 100 | % | 100 | % |

 

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The plans’ investments measured at fair value on a recurring basis as of February 28, 2013 and February 29, 2012 were as follows:

 
| ** **                 | ** ** | **Fair Value Measurement Using** | ** ** |
|----------------------------|------------|-------------------------------------------------|------------|
| ** **                 | ** ** | ** **                                      | ** ** | **Quoted Prices** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                 | ** ** | ** **                                      | ** ** | **in Active** | ** ** | **Significant** | ** ** | **Significant** | ** ** |
| ** **                 | ** ** | ** **                                      | ** ** | **Markets for** | ** ** | **Other** | ** ** | **Other** | ** ** |
| ** **                 | ** ** | ** **                                      | ** ** | **Identical** | ** ** | **Observable** | ** ** | **Unobservable** | ** ** |
| ** **                 | ** ** | ** **                                      | ** ** | **Assets** | ** ** | **Inputs** | ** ** | **Inputs** | ** ** |
| **(In thousands)**    | ** ** | **2013**                                        | ** ** | **(Level 1)** | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** |
|                       |       |                                            |       |   |   |   |   |   |   |
| Money market funds         |       | $                                               | 387        |   | $ | 387 |   | $ | — |   | $ | — |   |
| Fixed income mutual funds  |       | 3,543                                           |       | 3,543 |   | — |   | — |   |
| Equity mutual funds        |       | 1,854                                           |       | 1,854 |   | — |   | — |   |
| International equity funds |       | 1,127                                           |       | 1,127 |   | — |   | — |   |
| Balanced mutual funds      |       | 1,447                                           |       | 1,447 |   | — |   | — |   |
|                       |       | $                                               | 8,358      |   | $ | 8,358 |   | $ | — |   | $ | — |   |

 
| ** **                 | ** ** | **Fair Value Measurement Using** | ** ** |
|----------------------------|------------|-------------------------------------------------|------------|
| ** **                 | ** ** | ** **                                      | ** ** | **Quoted Prices** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                 | ** ** | ** **                                      | ** ** | **in Active** | ** ** | **Significant** | ** ** | **Significant** | ** ** |
| ** **                 | ** ** | ** **                                      | ** ** | **Markets for** | ** ** | **Other** | ** ** | **Other** | ** ** |
| ** **                 | ** ** | ** **                                      | ** ** | **Identical** | ** ** | **Observable** | ** ** | **Unobservable** | ** ** |
| ** **                 | ** ** | ** **                                      | ** ** | **Assets** | ** ** | **Inputs** | ** ** | **Inputs** | ** ** |
| **(In thousands)**    | ** ** | **2012**                                        | ** ** | **(Level 1)** | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** |
|                       |       |                                            |       |   |   |   |   |   |   |
| Money market funds         |       | $                                               | 359        |   | $ | 359 |   | $ | — |   | $ | — |   |
| Fixed income mutual funds  |       | 3,676                                           |       | 3,676 |   | — |   | — |   |
| Equity mutual funds        |       | 1,827                                           |       | 1,827 |   | — |   | — |   |
| International equity funds |       | 1,127                                           |       | 1,127 |   | — |   | — |   |
| Balanced mutual funds      |       | 1,106                                           |       | 1,106 |   | — |   | — |   |
|                       |       | $                                               | 8,095      |   | $ | 8,095 |   | $ | — |   | $ | — |   |

 

The Company’s investment policy includes various guidelines and procedures designed to ensure assets are invested in a manner necessary to meet expected future benefits by participants.  The investment guidelines consider a broad range of economic conditions.  Central to the policy are target allocation ranges.  The investment policy is periodically reviewed by the Company.  The policy is established and administered in a manner so as to comply at all times with applicable government regulations.

 

The Company expects to make contributions of $0.3 million to the plans during fiscal year 2014.

 

Estimated future benefit payments for the defined benefit plans are as follows:

 
| **(In thousands)** | ** ** | ** ** | ** ** |
|-------------------------|------------|------------|------------|
|                    |       |       |       |
| Fiscal Year Ending      |       |       |       |
| 2014                    |       | $          | 556        |   |
| 2015                    |       | 559        |       |
| 2016                    |       | 583        |       |
| 2017                    |       | 597        |       |
| 2018                    |       | 594        |       |
| Five years ended 2023   |       | 2,974      |       |
|                         |            |            |            |  |

 

*Other Plans*

 

The Company maintains, for certain salaried and hourly employees, an investment plan pursuant to which eligible employees can invest various percentages of their earnings, matched by an employer contribution of up to 6%.  Additionally, the Company may make special voluntary contributions to all employees eligible to participate in the plan, regardless of whether they contributed during the year.  Contributions were approximately $5.4 million, $5.0 million and $6.5 million for fiscal years 2013, 2012 and 2011, respectively and recorded within pension and profit sharing line of the consolidated statements of comprehensive loss.

 

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The Company has a nonqualified benefit plan for a select group of management employees.  The plan has four levels of participants and benefits vary depending on classification.  The plan consists of a defined Company contribution, elective deferrals and adeath benefit.  The defined Company contribution consists of a predetermined percentage of salary up to 10% and a target percentage of bonus, when declared, up to 25%.  Elective deferrals cannot exceed 50% of salary and 90% of bonus.  As of each June 30 vesting date, the Company contributions allocated to a participant’s account more than one but no more than two years prior to the vesting date vest at 40%, and an additional 20% per year thereafter until they are 100% vested.  Elective deferrals are always 100% vested. Contributions were approximately $1.2 million, $0.4 million and $0.4 million for fiscal years 2013, 2012 and 2011, respectively and were recorded within selling, administrative and general expenses in the consolidated statements of comprehensive loss.  The death benefit prior to termination of employment is the greater of the death benefit which ranges from 3.25 times base compensation to 6.5 times base compensation or the participant’s vested account.  The death benefit following termination of employment is the participant’s vested account.  Company contributions are bookkeeping entries and do not vest any right, title or interest to any specific asset of the Company and are considered unsecured general obligations of the Company.  The Company has chosen to purchase individual life insurance policies on this select group of management employees and the life insurance is considered an asset of the Company.  The cash surrender value of the life insurance policy as of February 28, 2013 and February 29, 2012 was $4.3 million and $1.0 million and recorded as part of other noncurrent assets.  The liability as of February 28, 2013 and February 29, 2012 was $4.6 million and $3.9 million and recorded under noncurrent liabilities.

 

The Company has unfunded supplemental retirement agreements with individuals previously associated with the Company which had actuarial present values of future payments of $0.3 million at February 28, 2013, February 29, 2012 and February 28, 2011, which are included in other noncurrent liabilities on the balance sheet.

 

The Company maintains postretirement life insurance and medical benefits plans for certain employees eligible to participate in the plans after meeting certain age and years of service requirements.  The actuarial present value of future life insurance premium and medical benefit payments under these plans was $0.2 million at February 28, 2013 and February 29, 2012.

 

**12. ****   ****Asset Retirement Obligations**

 

The Company has asset retirement obligations arising from regulatory requirements to perform certain reclamation activities upon the closure of quarries.  The liability is initially measured at estimated fair value and is subsequently adjusted for accretion expenses and changes in the amount or timing of the estimated cash flows.  These asset retirement obligations relate to all underlying land parcels, including both owned properties and mineral leases.  The corresponding asset retirement costs are capitalized as part of the carrying amount of the related long-lived asset and depreciated over the asset’s useful life.  The Company recognized depreciation expense related to its asset retirement obligations of $2.7 million, $4.1 million and $0.1 million in fiscal years 2013, 2012 and 2011, respectively.  We recognized accretion expense related to our asset retirement obligations totaling $0.6 million, $0.4 million and $0.4 million in fiscal years 2013, 2012 and 2011, respectively.  Accretion expense is reported in cost of revenue.

 

The following shows the changes in the asset retirement obligations for the years ended February 28, 2013, February 29, 2012 and February 28, 2011:  

 
| ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **(In thousands)**         | ** ** | **2013**   | ** ** | **2012**   | ** ** | **2011**   | ** ** |
|                            |       |       |       |       |       |       |       |
| Balance at March 1         |       | $          | 11,360     |       | $          | 5,151      |       | $ | 4,748 |   |
| Accretion expense               |       | 642        |       | 446        |       | 416        |       |
| Liabilities incurred            |       | —     |       | 333        |       | —     |       |
| Change in estimated obligations |       | 6,438      |       | 5,444      |       | —     |       |
| Liabilities settled             |       | (4,785     | )          | (14        | )          | (13        | )          |
|                            |       | $          | 13,655     |       | $          | 11,360     |       | $ | 5,151 |   |

 

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**13.****      ****Supplemental Disclosures of Cash Flow Information**

 
| ** **                                             | ** ** | **Year Ended** | ** ** |
|--------------------------------------------------------|------------|---------------------|------------|
| ** **                                             | ** ** | **February**        | ** ** | **February** | ** ** | **February** | ** ** |
| **(In thousands)**                                | ** ** | **28, 2013**   | ** ** | **29, 2012** | ** ** | **28, 2011** | ** ** |
| ** **                                             | ** ** | ** **          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Capital lease and other noncash obligations   incurred |       | $                   | 2,185      |   | $ | 3,254 |   | $ | 11,038 |   |
| Cash paid for interest, net of amounts capitalized     |       | 37,672              |       | 43,541 |   | 21,535 |   |
| Cash paid for taxes                                    |       | 11                  |       | 33 |   | 782 |   |
|                                                        |            |                     |            |  |  |  |  |  |  |  |

 

**14.****      ****Stock Transactions**

 

*Exchange of Common Stock*

 

On December 28, 2012, each of Paul I. Detwiler, Jr. and Donald L. Detwiler exchanged 10,000 shares of Class A voting common stock of the Company for 11,180 shares of Class B non-voting common stock of the Company.  The shares of the exchanged Class B non-voting common stock were then gifted by such individuals to their family members, each of whom is an existing shareholder.  As a result of the exchange for Class B non-voting common stock, the gifting of such equity securities did not affect the voting control of the Company.

 

*Put Rights*

 

On August 22, 2011, the stockholders of the Company amended the Stock Restriction Agreement which, among other things, required the Company to purchase, at any time, all or some of a stockholder’s common stock at the option of the individual stockholders. The amendment eliminated the stockholders’ right to require the Company to purchase the common stock on a prospective basis.  As a result, the amount attributable to the fair value of the common stock as of the amendment date was reclassified from mezzanine or temporary equity to shareholders’ equity as additional paid in capital.  The Company did not change the amount issued, outstanding or par value of its common stock.

 

Prior to August 22, 2011, the stockholders of the Company had put rights on all outstanding common stock which could require the Company to purchase, at any time, all or some of a stockholder’s common stock. The common stock was classified as mezzanine or temporary equity for all prior periods as the shares were redeemable at the option of the holder and had conditions for redemption which were not solely within the control of the Company. The redemption price was determined based upon the terms and conditions of the underlying stockholders’ agreement and was based upon either a formulaic calculation (in the event of a put of less than 100% of an individual stockholder’s shares) or an appraisal (in the event of a put of all of an individual stockholder’s shares). The value of the common stock was adjusted through retained earnings to its maximum redemption value as of each reporting date and as of the termination date.

 

If the Company was unable to purchase the common stock by reason of a legal or contractual impediment, then a stockholder, subject to the terms and restrictions set forth in the Stock Restriction Agreement, could sell common stock to other purchasers. The Company was restricted from purchasing any of its common stock due to contractual impediments contained in certain financing arrangements.

 

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**15.****      ****Other Comprehensive Income (Loss)**

 

The Company’s other comprehensive income (loss) consists of the following:

 
| ** **                                                                     | ** ** | ** **     | ** ** | **Tax**       | ** ** | ** **     | ** ** |
|--------------------------------------------------------------------------------|------------|----------------|------------|---------------|------------|----------------|------------|
| ** **                                                                     | ** ** | **Before-tax** | ** ** | **Expense**   | ** ** | **Net-of-tax** | ** ** |
| **(In thousands)**                                                        | ** ** | **Amount**     | ** ** | **(Benefit)** | ** ** | **Amount**     | ** ** |
|                                                                           |       |           |       |          |       |           |       |
| Net unrealized loss arising during the period                                  |       | $              | (652       | )             | $          | 197            |       | $ | (455 | ) |
| Reclassification of prior service costs and net   actuarial loss into earnings |       | 307            |       | (93           | )          | 214            |       |
| Year ended February 28, 2013                                              |       | $              | (345       | )             | $          | 104            |       | $ | (241 | ) |
|                                                                           |       |           |       |          |       |           |       |
| Net unrealized loss arising during the period                                  |       | $              | (1,504     | )             | $          | 621            |       | $ | (883 | ) |
| Reclassification of prior service costs and net   actuarial loss into earnings |       | 178            |       | (73           | )          | 105            |       |
| Year ended February 29, 2012                                              |       | $              | (1,326     | )             | $          | 548            |       | $ | (778 | ) |
|                                                                           |       |           |       |          |       |           |       |
| Net unrealized gain arising during the period                                  |       | $              | 87         |          | $          | (36            | )          | $ | 51 |   |
| Reclassification of prior service costs and net   actuarial loss into earnings |       | 208            |       | (86           | )          | 122            |       |
| Year ended February 28, 2011                                              |       | $              | 295        |          | $          | (122           | )          | $ | 173 |   |

 

**16.****      ****Commitments and Contingencies**

 

*Lease commitments*

 

The Company has various noncancelable operating leases with initial or remaining terms in excess of one year.  In addition, certain leases contain early purchase options that if exercised would reduce the minimum payments.  The future minimum payments under these operating leases are payable as follows:

 
| **(In thousands)** | ** ** | ** ** | ** ** |
|-------------------------|------------|------------|------------|
|                    |       |       |       |
| Fiscal Year Ending      |       |       |       |
| 2014                    |       | $          | 2,062      |   |
| 2015                    |       | 1,437      |       |
| 2016                    |       | 1,098      |       |
| 2017                    |       | 582        |       |
| 2018                    |       | 271        |       |
| Thereafter              |       | 2,486      |       |
|                    |       | $          | 7,936      |   |

 

Total operating lease expenses were $3.8 million, $8.7 million and $9.3 million in fiscal years 2013, 2012 and 2011, respectively.

 

In conjunction with the Company’s 16.2% ownership in Means to Go, LLC, the Company entered into an aircraft lease agreement which expired on December 31, 2011 and is renewed from time to time. The Company is obligated to make lease payments of $0.2 million annually during this period to cover projected fixed charges of operating the aircraft, which is included in the above operating lease commitments. Additionally, the Company is billed an hourly charge for use of the aircraft which is based on the variable costs of operating such aircraft. The Company has provided a letter of credit in the amount of $1.1 million in relation to its obligation as a member of Means to Go, LLC.

 

*Contingencies*

 

In the normal course of business, the Company has commitments, lawsuits, claims and contingent liabilities.  The ultimate disposition of these matters is not expected to have a material adverse effect on the Company’s consolidated financial position, statement of comprehensive income (loss) or liquidity.

 

The Company maintains a self-insurance program for workers’ compensation (Pennsylvania employees) coverage, which is administered by a third party management company.  The Company’s self-insurance retention is limited to $1.0 million per occurrence with the excess covered by workers’ compensation excess liability insurance.  The Company is required to maintain a $7.2 million surety bond with the Commonwealth of Pennsylvania.  Self-insurance costs are accrued based upon the aggregate of the liability for reported claims and an estimated liability for claims incurred but not reported.  The Company also maintains three 

 

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self-insurance programs for health coverage with losses limited to $0.3 million per employee.  Additionally, the Company is required to provide a letter of credit in the amount of $0.7 million to guarantee payment of the deductible portion of its liability coverage which existed prior to January 1, 2008.

 

The Company also maintains a captive insurance company, Rock Solid Insurance Company (“RSIC”), for workers’ compensation (non-Pennsylvania employees), general liability, auto, health, and property coverage. On April 8, 2011, RSIC entered into a Collateral Trust Agreement with an insurer to eliminate a letter of credit that was required to maintain coverage of the deductible portion of its liability coverage.  The total amount of collateral provided in the arrangement was $8.8 million and is recorded as part of restricted cash as of February 28, 2013 and February 29, 2012 in our consolidated balance sheets.  Reserves for retained losses within this captive, which are recorded in accrued liabilities in our consolidated balance sheets, were approximately $10.8 million and $9.7 million as of February 28, 2013 and February 29, 2012, respectively.  Exposures for periods prior to the inception of the captive are covered by pre-existing insurance policies.  Other accrued amounts included as insurance, which mostly relates to worker’s compensation, included in Note 8, “Accrued Liabilities” totaled $8.9 million and $8.7 million as of February 28, 2013 and February 29, 2012, respectively.

 

**17. ****   ****Business Segments**

 

The Company reports information about its operating segments using the “management approach,” which is based on the way management organizes and reports the segments within the organization for making operating decisions and assessing performance to the chief operating decision maker.  The Company’s three reportable segments are: (i) construction materials; (ii) heavy/highway construction; and (iii) traffic safety services and equipment.  Almost all activity of the Company is domestic.  Segment information includes both inter-segment and certain intra-segment activities.  A description of the services and product offerings within each of the Company’s segments is provided below.

 

Construction materials mines and produces aggregates (crushed stone, construction sand and gravel), hot mix asphalt, ready mixed concrete and other concrete products including precast/prestressed structural concrete components and masonry blocks for sale to third parties and internal use.  Construction materials serve markets primarily in the Commonwealth of Pennsylvania and western New York. The high weight-to-value ratio of aggregates and concrete products and the time in which ready-mixed concrete and hot mix asphalt begin to set, limit the efficient distribution range for these products to roughly a one-hour haul time.  Accordingly, the Company’s markets for these products are generally local in nature.

 

Heavy/highway construction includes heavy and highway construction, blacktop paving and other site preparation services.  Heavy/highway construction is primarily supplied with its construction materials, such as hot mix asphalt, ready-mixed concrete and aggregates from our construction materials segment and serves markets primarily in the Commonwealth of Pennsylvania.

 

Traffic safety services and equipment rents and sells general and specialty traffic control and work zone safety equipment and safety services to industrial and construction end-users.  Traffic safety services and equipment business sells equipment through its national sales network and provides traffic maintenance and protection services primarily throughout the eastern United States.

 

The Company reviews earnings of the segments principally at the operating profit level and accounts for inter-segment and certain intra-segment sales at prices that range from negotiated rates to those that approximate fair market value.  Segment operating profit consists of revenue less operating costs and expenses.  Corporate and unallocated costs include those administrative and financial costs which are not allocated to segment operations and are excluded from segment operating profit.  These costs include corporate administrative functions, unallocated corporate functions and divisional administrative functions.  Segment assets are those assets that are used in each segment’s operations and include only assets directly identified with those operations.  Corporate and unallocated assets include principally cash and cash equivalents, prepaid and other assets, deferred income taxes and cash value of life insurance.  The accounting policies of the segments are the same as those described in Note 1, “Nature of Operations and Summary of Significant Accounting Policies”.

 

The Company’s segment revenue presentation for fiscal years 2012 and 2011 has been revised to conform to the current presentation.  The revisions resulted in decreases to heavy/highway construction revenue and eliminations of $29.8 million and $30.8 million for fiscal years 2012 and 2011, respectively.  These revisions were made to align with the current management approach related to this segment.

 

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The following is a summary of certain financial data for the Company’s operating segments:

 
| ** **                            | ** ** | **Year Ended**   | ** ** |
|---------------------------------------|------------|-----------------------|------------|
| ** **                            | ** ** | **February 28,** | ** ** | **February 29,** | ** ** | **February 28,** | ** ** |
| **(In thousands)**               | ** ** | **2013**              | ** ** | **2012** | ** ** | **2011** | ** ** |
|                                  |       |                  |       |   |   |   |   |
| **Revenue**                           |       |                  |       |   |   |   |   |
| Construction materials                |       | $                     | 505,026    |   | $ | 529,838 |   | $ | 512,143 |   |
| Heavy/highway construction            |       | 248,188               |       | 268,160 |   | 306,795 |   |
| Traffic safety services and equipment |       | 84,463                |       | 82,929 |   | 78,181 |   |
| Other revenues                        |       | 15,264                |       | 15,592 |   | 15,220 |   |
| Segment totals                        |       | 852,941               |       | 896,519 |   | 912,339 |   |
| Eliminations                          |       | (175,851              | )          | (190,585 | ) | (186,940 | ) |
| Total revenue                         |       | $                     | 677,090    |   | $ | 705,934 |   | $ | 725,399 |   |
|                                  |       |                  |       |   |   |   |   |
| **Operating (loss) income**           |       |                  |       |   |   |   |   |
| Construction materials                |       | $                     | 27,567     |   | $ | 36,192 |   | $ | 36,108 |   |
| Heavy/highway construction            |       | (6,800                | )          | (5,103 | ) | 6,454 |   |
| Traffic safety services and equipment |       | (5,769                | )          | (209 | ) | 3,377 |   |
| Corporate and unallocated             |       | (36,843               | )          | (26,147 | ) | (14,922 | ) |
| Total operating (loss) income         |       | $                     | (21,845    | ) | $ | 4,733 |   | $ | 31,017 |   |

 
| ** **                                         | ** ** | **Year Ended**   | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|
| ** **                                         | ** ** | **February 28,** | ** ** | **February 29,** | ** ** | **February 28,** | ** ** |
| **(In thousands)**                            | ** ** | **2013**              | ** ** | **2012** | ** ** | **2011** | ** ** |
|                                               |       |                  |       |   |   |   |   |
| **Product and services revenue**                   |       |                  |       |   |   |   |   |
| Construction materials                             |       |                  |       |   |   |   |   |
| Aggregates                                         |       | $                     | 189,084    |   | $ | 202,459 |   | $ | 192,102 |   |
| Hot mix asphalt                                    |       | 196,474               |       | 201,742 |   | 196,209 |   |
| Ready mixed concrete                               |       | 62,705                |       | 62,522 |   | 63,459 |   |
| Precast/prestressed structural concrete            |       | 26,460                |       | 30,680 |   | 27,353 |   |
| Masonry products                                   |       | 16,083                |       | 17,287 |   | 17,880 |   |
| Construction supply centers                        |       | 14,220                |       | 15,148 |   | 15,140 |   |
| Heavy/highway construction                         |       | 248,188               |       | 268,160 |   | 306,795 |   |
| Traffic safety services and equipment              |       | 84,463                |       | 82,929 |   | 78,181 |   |
| Other revenues                                     |       | 15,264                |       | 15,592 |   | 15,220 |   |
| Eliminations                                       |       | (175,851              | )          | (190,585 | ) | (186,940 | ) |
| Total revenue                                      |       | $                     | 677,090    |   | 705,934 |   | $ | 725,399 |   |
|                                               |       |                  |       |   |   |   |   |
| **Product and services operating   income (loss)** |       |                  |       |   |   |   |   |
| Construction materials                             |       |                  |       |   |   |   |   |
| Aggregates                                         |       | $                     | 14,074     |   | $ | 19,027 |   | $ | 19,443 |   |
| Hot mix asphalt                                    |       | 16,851                |       | 15,113 |   | 18,508 |   |
| Ready mixed concrete                               |       | 1,284                 |       | 2,349 |   | 2,595 |   |
| Precast/prestressed structural concrete            |       | (1,852                | )          | (704 | ) | (3,187 | ) |
| Masonry products                                   |       | (876                  | )          | (521 | ) | (1,528 | ) |
| Construction supply centers                        |       | 790                   |       | 928 |   | 277 |   |
| Intangible asset impairment                        |       | (2,704                | )          | — |   | — |   |
| Heavy/highway construction                         |       | (6,800                | )          | (5,103 | ) | 6,454 |   |
| Traffic safety services and equipment              |       | (5,769                | )          | (209 | ) | 3,377 |   |
| Corporate and unallocated                          |       | (36,843               | )          | (26,147 | ) | (14,922 | ) |
| Total operating (loss) income                      |       | $                     | (21,845    | ) | $ | 4,733 |   | $ | 31,017 |   |

 

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| ** **                                     | ** ** | **Year Ended** | ** ** |
|------------------------------------------------|------------|---------------------|------------|
| ** **                                     | ** ** | **February**        | ** ** | **February** | ** ** | **February** | ** ** |
| **(In thousands)**                        | ** ** | **28, 2013**   | ** ** | **29, 2012** | ** ** | **28, 2011** | ** ** |
|                                           |       |                |       |   |   |   |   |
| **Depreciation, depletion and   amortization** |       |                |       |   |   |   |   |
| Construction materials                         |       | $                   | 28,183     |   | $ | 33,151 |   | $ | 28,301 |   |
| Heavy/highway construction                     |       | 11,819              |       | 9,018 |   | 8,808 |   |
| Traffic safety services and equipment          |       | 7,312               |       | 7,155 |   | 7,384 |   |
| Corporate and unallocated                      |       | 3,628               |       | 2,350 |   | 1,424 |   |
| Total depreciation, depletion and amortization |       | $                   | 50,942     |   | $ | 51,674 |   | $ | 45,917 |   |
|                                           |       |                |       |   |   |   |   |
| **Capital expenditures**                       |       |                |       |   | ** ** |   | ** ** |
| Construction materials                         |       | $                   | 29,725     |   | $ | 22,916 |   | $ | 21,650 |   |
| Heavy/highway construction                     |       | 11,613              |       | 11,189 |   | 8,380 |   |
| Traffic safety services and equipment          |       | 2,302               |       | 3,204 |   | 7,557 |   |
| Corporate and unallocated                      |       | 962                 |       | 9,899 |   | 6,157 |   |
| Total capital expenditures                     |       | $                   | 44,602     |   | $ | 47,208 |   | $ | 43,744 |   |

 
| ** **                            | ** ** | **February**      | ** ** | **February**      | ** ** |
|---------------------------------------|------------|-------------------|------------|-------------------|------------|
| **(In thousands)**               | ** ** | **28, 2013** | ** ** | **29, 2012** | ** ** |
|                                  |       |              |       |              |       |
| **Segment assets**                    |       |              |       |              |       |
| Construction materials                |       | $                 | 523,087    |              | $          | 538,061 |   |
| Heavy/highway construction            |       | 53,894            |       | 66,458            |       |
| Traffic safety services and equipment |       | 62,274            |       | 72,313            |       |
| Corporate and unallocated             |       | 94,933            |       | 99,490            |       |
| Total assets                          |       | $                 | 734,188    |              | $          | 776,322 |   |

 

In fiscal year 2013, sales to one customer of $151.5 million represented more than 10% of our revenue.  In fiscal year 2012, sales to one customer of $98.2 million represented more than 10% of our revenue.  In fiscal year 2011, sales to two customers of $218.3 million each represented more than 10% of our revenue.

 

**18. ****   ****Condensed Issuer, Guarantor and Non-Guarantor Financial Information**

 

The Company’s Secured Notes and Notes are guaranteed by certain subsidiaries.  Except for RSIC, NESL, II LLC, and Kettle Creek Partners GP, LLC, all existing consolidated subsidiaries of the Company are 100% owned and provide a joint and several, full and unconditional guarantee of the securities.  These entities include Gateway Trade Center Inc., EII Transport Inc., Protections Services Inc., Work Area Protection Corp., SCI Products Inc., ASTI Transportation Systems, Inc., and Precision Solar Controls Inc. (“Guarantor Subsidiaries”).  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.  Certain other wholly owned subsidiaries and consolidated partially owned partnerships do not guarantee the Secured Notes or the Notes.  These entities include RSIC, South Woodbury, L.P., NESL, II LLC, Kettle Creek Partners L.P., and Kettle Creek Partners GP, LLC (“Non Guarantors”).

 

The following condensed consolidating balance sheets, statements of comprehensive income (loss) and statements of cash flows are provided for the Company, all Guarantor Subsidiaries and Non Guarantors.  The information has been presented as if the parent Company accounted for its ownership of the Guarantor Subsidiaries and Non Guarantors using the equity method of accounting.

 

The Company revised its condensed consolidating statements of operations for the fiscal year ended February 28, 2011, to correct certain errors in income taxes, noncontrolling interest and certain other eliminating adjustments. The revision was made to appropriately present parent company and eliminated activity in the appropriate column of the consolidating schedule. For the year-ended February 28, 2011, the revision resulted in a net increase of $0.3 million to the “net loss attributable to New Enterprise Stone & Lime Co., Inc.” in the New Enterprise Stone & Lime Co. Inc. column, a decrease to “net loss attributable to New Enterprise Stone & Lime Co., Inc.” in the eliminations column of $1.5 million and an increase in the “noncontrolling interest in net income” of $1.2 million within the Non-Guarantor column.

 

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**Condensed Consolidating Balance Sheet at February 28, 2013**

 
| **(In thousands)**                                                | ** ** | **New Enterprise   Stone & Lime   Co., Inc.** | ** ** | **Guarantor   Subsidiaries** | ** ** | **Non   Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|------------------------------|------------|----------------------|------------|------------------|------------|-----------|------------|
| **Assets**                                                             |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| Current assets                                                         |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| Cash and cash equivalents                                              |       | $                                                                     | 31         |                         | $          | 19                   |       | $                | 9,484      |      | $          | — |   | $ | 9,534 |   |
| Restricted cash                                                        |       | 1,174                                                                 |       | 105                          |       | 8,844                |       | —           |       | 10,123    |       |
| Accounts receivable                                                    |       | 39,128                                                                |       | 13,129                       |       | 14                   |       | —           |       | 52,271    |       |
| Inventories                                                            |       | 109,032                                                               |       | 16,112                       |       | —               |       | —           |       | 125,144   |       |
| Net investment in lease                                                |       | —                                                                |       | —                       |       | 634                  |       | (634             | )          | —    |       |
| Deferred income taxes                                                  |       | 11,425                                                                |       | 961                          |       | —               |       | —           |       | 12,386    |       |
| Other current assets                                                   |       | 6,992                                                                 |       | 1,317                        |       | 28                   |       | —           |       | 8,337     |       |
| Total current assets                                                   |       | 167,782                                                               |       | 31,643                       |       | 19,004               |       | (634             | )          | 217,795   |       |
| Property, plant and equipment, net                                     |       | 350,656                                                               |       | 21,212                       |       | 7,589                |       | (7,589           | )          | 371,868   |       |
| Goodwill                                                               |       | 83,228                                                                |       | 5,845                        |       | —               |       | —           |       | 89,073    |       |
| Other intangible assets                                                |       | 8,093                                                                 |       | 12,907                       |       | —               |       | —           |       | 21,000    |       |
| Investment in subsidiaries                                             |       | 81,430                                                                |       | —                       |       | —               |       | (81,430          | )          | —    |       |
| Intercompany receivables                                               |       | 279                                                                   |       | 19,984                       |       | —               |       | (20,263          | )          | —    |       |
| Other assets                                                           |       | 33,252                                                                |       | 1,200                        |       | —               |       | —           |       | 34,452    |       |
|                                                                   |       | $                                                                     | 724,720    |                         | $          | 92,791               |       | $                | 26,593     |      | $          | (109,916 | ) | $ | 734,188 |   |
| **Liabilities and (Deficit) Equity**                                   |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| Current liabilities                                                    |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| Current maturities of long-term debt                                   |       | $                                                                     | 11,175     |                         | $          | —               |       | $                | 801        |      | $          | (634 | ) | $ | 11,342 |   |
| Accounts payable - trade                                               |       | 18,343                                                                |       | 2,044                        |       | 221                  |       | —           |       | 20,608    |       |
| Accrued liabilities                                                    |       | 37,640                                                                |       | 5,135                        |       | 11,232               |       | —           |       | 54,007    |       |
| Total current liabilities                                              |       | 67,158                                                                |       | 7,179                        |       | 12,254               |       | (634             | )          | 85,957    |       |
| Intercompany payables                                                  |       | 19,984                                                                |       | —                       |       | 279                  |       | (20,263          | )          | —    |       |
| Long-term debt, less current maturities                                |       | 559,915                                                               |       | —                       |       | 6,730                |       | —           |       | 566,645   |       |
| Obligations under capital leases, less current   installments          |       | 7,589                                                                 |       | —                       |       | —               |       | (7,589           | )          | —    |       |
| Deferred income taxes                                                  |       | 43,834                                                                |       | 8,609                        |       | —               |       | —           |       | 52,443    |       |
| Other liabilities                                                      |       | 35,723                                                                |       | 1,010                        |       | —               |       | —           |       | 36,733    |       |
| Total liabilities                                                      |       | 734,203                                                               |       | 16,798                       |       | 19,263               |       | (28,486          | )          | 741,778   |       |
| (Deficit) equity                                                       |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| New Enterprise Stone & Lime   Co., Inc. (deficit) equity |       | (9,483                                                                | )          | 75,993                       |       | 5,437                |       | (81,430          | )          | (9,483    | )          |
| Noncontrolling interest                                                |       | —                                                                |       | —                       |       | 1,893                |       | —           |       | 1,893     |       |
| Total (deficit) equity                                                 |       | (9,483                                                                | )          | 75,993                       |       | 7,330                |       | (81,430          | )          | (7,590    | )          |
|                                                                   |       | $                                                                     | 724,720    |                         | $          | 92,791               |       | $                | 26,593     |      | $          | (109,916 | ) | $ | 734,188 |   |

 

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**Condensed Consolidating Balance Sheet at February 29, 2012**

 
| **(In thousands)**                                                | ** ** | **New Enterprise   Stone & Lime   Co., Inc.** | ** ** | **Guarantor   Subsidiaries** | ** ** | **Non   Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|------------------------------|------------|----------------------|------------|------------------|------------|-----------|------------|
| **Assets**                                                             |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| Current assets                                                         |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| Cash and cash equivalents                                              |       | $                                                                     | 7,106      |                         | $          | 476                  |       | $                | 7,450      |      | $          | — |   | $ | 15,032 |   |
| Restricted cash                                                        |       | 1,379                                                                 |       | 102                          |       | 8,841                |       | —           |       | 10,322    |       |
| Accounts receivable                                                    |       | 61,891                                                                |       | 14,933                       |       | 17                   |       | —           |       | 76,841    |       |
| Inventories                                                            |       | 114,888                                                               |       | 17,307                       |       | —               |       | —           |       | 132,195   |       |
| Net investment in lease                                                |       | —                                                                |       | —                       |       | 610                  |       | (610             | )          | —    |       |
| Deferred income taxes                                                  |       | 14,912                                                                |       | 1,107                        |       | —               |       | —           |       | 16,019    |       |
| Other current assets                                                   |       | 7,434                                                                 |       | 326                          |       | 28                   |       | —           |       | 7,788     |       |
| Total current assets                                                   |       | 207,610                                                               |       | 34,251                       |       | 16,946               |       | (610             | )          | 258,197   |       |
| Property, plant and equipment, net                                     |       | 345,461                                                               |       | 25,947                       |       | 7,451                |       | (7,285           | )          | 371,574   |       |
| Goodwill                                                               |       | 85,002                                                                |       | 5,845                        |       | —               |       | —           |       | 90,847    |       |
| Other intangible assets                                                |       | 10,904                                                                |       | 15,440                       |       | —               |       | —           |       | 26,344    |       |
| Investment in subsidiaries                                             |       | 82,166                                                                |       | —                       |       | —               |       | (82,166          | )          | —    |       |
| Intercompany receivables                                               |       | 280                                                                   |       | 16,310                       |       | —               |       | (16,590          | )          | —    |       |
| Other assets                                                           |       | 29,360                                                                |       | —                       |       | —               |       | —           |       | 29,360    |       |
|                                                                   |       | $                                                                     | 760,783    |                         | $          | 97,793               |       | $                | 24,397     |      | $          | (106,651 | ) | $ | 776,322 |   |
| **Liabilities and (Deficit) Equity**                                   |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| Current liabilities                                                    |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| Current maturities of long-term debt                                   |       | $                                                                     | 7,671      |                         | $          | —               |       | $                | 477        |      | $          | (610 | ) | $ | 7,538 |   |
| Accounts payable - trade                                               |       | 24,239                                                                |       | 3,166                        |       | 153                  |       | —           |       | 27,558    |       |
| Accrued liabilities                                                    |       | 38,594                                                                |       | 3,309                        |       | 9,728                |       | —           |       | 51,631    |       |
| Total current liabilities                                              |       | 70,504                                                                |       | 6,475                        |       | 10,358               |       | (610             | )          | 86,727    |       |
| Intercompany payables                                                  |       | 16,310                                                                |       | —                       |       | 280                  |       | (16,590          | )          | —    |       |
| Long-term debt, less current maturities                                |       | 514,191                                                               |       | —                       |       | 7,284                |       | —           |       | 521,475   |       |
| Obligations under capital leases, less current   installments          |       | 7,285                                                                 |       | —                       |       | —               |       | (7,285           | )          | —    |       |
| Deferred income taxes                                                  |       | 82,772                                                                |       | 13,902                       |       | —               |       | —           |       | 96,674    |       |
| Other liabilities                                                      |       | 21,445                                                                |       | 133                          |       | —               |       | —           |       | 21,578    |       |
| Total liabilities                                                      |       | 712,507                                                               |       | 20,510                       |       | 17,922               |       | (24,485          | )          | 726,454   |       |
| (Deficit) equity                                                       |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| New Enterprise Stone & Lime   Co., Inc. (deficit) equity |       | 48,276                                                                |       | 77,283                       |       | 4,883                |       | (82,166          | )          | 48,276    |       |
| Noncontrolling interest                                                |       | —                                                                |       | —                       |       | 1,592                |       | —           |       | 1,592     |       |
| Total (deficit) equity                                                 |       | 48,276                                                                |       | 77,283                       |       | 6,475                |       | (82,166          | )          | 49,868    |       |
|                                                                   |       | $                                                                     | 760,783    |                         | $          | 97,793               |       | $                | 24,397     |      | $          | (106,651 | ) | $ | 776,322 |   |

 

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**Condensed Consolidating Statement of Comprehensive Income (Loss) for the year ended February 28, 2013**

 
| **(In thousands)**                                                                           | ** ** | **New Enterprise   Stone & Lime   Co., Inc.** | ** ** | **Guarantor**

**Subsidiaries** | ** ** | **Non**

**Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|---------------------------------|------------|-------------------------|------------|------------------|------------|-----------|------------|
| Revenue                                                                                           |       | $                                                                     | 593,624    |                            | $          | 86,563                  |       | $                | 7,714      |      | $          | (10,811 | ) | $ | 677,090 |   |
| Cost of revenue (exclusive of items shown   separately below)                                     |       | 492,386                                                               |       | 70,929                          |       | 4,999                   |       | (10,811          | )          | 557,503   |       |
| Depreciation, depletion and amortization                                                          |       | 42,452                                                                |       | 8,490                           |       | —                  |       | —           |       | 50,942    |       |
| Intangible asset impairment                                                                       |       | 2,704                                                                 |       | 2,000                           |       | —                  |       | —           |       | 4,704     |       |
| Pension and profit sharing                                                                        |       | 7,996                                                                 |       | 329                             |       | —                  |       | —           |       | 8,325     |       |
| Selling, administrative and general expenses                                                      |       | 66,261                                                                |       | 10,509                          |       | 368                     |       | —           |       | 77,138    |       |
| (Gain) loss on disposals of property, equipment   and software                                    |       | 193                                                                   |       | 130                             |       | —                  |       | —           |       | 323       |       |
| Operating (loss) income                                                                           |       | (18,368                                                               | )          | (5,824                          | )          | 2,347                   |       | —           |       | (21,845   | )          |
| Interest expense, net                                                                             |       | (75,149                                                               | )          | (289                            | )          | (409                    | )          | —           |       | (75,847   | )          |
| (Loss) income before income taxes                                                                 |       | (93,517                                                               | )          | (6,113                          | )          | 1,938                   |       | —           |       | (97,692   | )          |
| Income tax benefit                                                                                |       | (36,735                                                               | )          | (4,823                          | )          | —                  |       | —           |       | (41,558   | )          |
| Equity in earnings of subsidiaries                                                                |       | (736                                                                  | )          | —                          |       | —                  |       | 736              |       | —    |       |
| Net (loss) income                                                                                 |       | (57,518                                                               | )          | (1,290                          | )          | 1,938                   |       | 736              |       | (56,134   | )          |
| Unrealized actuarial losses and amortization of   prior service costs, net of income tax          |       | (241                                                                  | )          | —                          |       | —                  |       | —           |       | (241      | )          |
| Comprehensive (loss) income                                                                       |       | (57,759                                                               | )          | (1,290                          | )          | 1,938                   |       | 736              |       | (56,375   | )          |
| Less: comprehensive income attributable to   noncontrolling interest                              |       | —                                                                |       | —                          |       | (1,384                  | )          | —           |       | (1,384    | )          |
| Comprehensive (loss) income attributable to New   Enterprise Stone & Lime Co., Inc. |       | $                                                                     | (57,759    | )                               | $          | (1,290                  | )          | $                | 554        |      | $          | 736 |   | $ | (57,759 | ) |

 

**Condensed Consolidating Statement of Comprehensive Income (Loss) for the year ended February 29, 2012**

 
| **(In thousands)**                                                                           | ** ** | **New Enterprise**

**Stone & Lime   Co., Inc.** | ** ** | **Guarantor   Subsidiaries** | ** ** | **Non   Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|------------------------------|------------|----------------------|------------|------------------|------------|-----------|------------|
| Revenue                                                                                           |       | $                                                                        | 638,256    |                         | $          | 80,369               |       | $                | 6,378      |      | $          | (19,069 | ) | $ | 705,934 |   |
| Cost of revenue (exclusive of items shown   separately below)                                     |       | 528,946                                                                  |       | 61,928                       |       | 3,681                |       | (19,069          | )          | 575,486   |       |
| Depreciation, depletion and amortization                                                          |       | 44,094                                                                   |       | 7,580                        |       | —               |       | —           |       | 51,674    |       |
| Intangible asset impairment                                                                       |       | —                                                                   |       | 1,100                        |       | —               |       | —           |       | 1,100     |       |
| Pension and profit sharing                                                                        |       | 7,406                                                                    |       | 216                          |       | —               |       | —           |       | 7,622     |       |
| Selling, administrative and general expenses                                                      |       | 54,307                                                                   |       | 9,587                        |       | 617                  |       | —           |       | 64,511    |       |
| Loss on disposals of property, equipment and   software                                           |       | 808                                                                      |       | —                       |       | —               |       | —           |       | 808       |       |
| Operating income (loss)                                                                           |       | 2,695                                                                    |       | (42                          | )          | 2,080                |       | —           |       | 4,733     |       |
| Interest expense, net                                                                             |       | (45,670                                                                  | )          | (255                         | )          | (634                 | )          | —           |       | (46,559   | )          |
| (Loss) income before income taxes                                                                 |       | (42,975                                                                  | )          | (297                         | )          | 1,446                |       | —           |       | (41,826   | )          |
| Income tax benefit                                                                                |       | (16,292                                                                  | )          | (105                         | )          | —               |       | —           |       | (16,397   | )          |
| Equity in earnings of subsidiaries                                                                |       | 434                                                                      |       | —                       |       | —               |       | (434             | )          | —    |       |
| Net (loss) income                                                                                 |       | (26,249                                                                  | )          | (192                         | )          | 1,446                |       | (434             | )          | (25,429   | )          |
| Unrealized actuarial losses and amortization of prior   service costs, net of income tax          |       | (778                                                                     | )          | —                       |       | —               |       | —           |       | (778      | )          |
| Comprehensive (loss) income                                                                       |       | (27,027                                                                  | )          | (192                         | )          | 1,446                |       | (434             | )          | (26,207   | )          |
| Less: comprehensive income attributable to noncontrolling   interest                              |       | —                                                                   |       | —                       |       | (820                 | )          | —           |       | (820      | )          |
| Comprehensive (loss) income attributable to New   Enterprise Stone & Lime Co., Inc. |       | $                                                                        | (27,027    | )                            | $          | (192                 | )          | $                | 626        |      | $          | (434 | ) | $ | (27,027 | ) |

 

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**Condensed Consolidating Statement of Comprehensive Income (Loss) for the year ended February 28, 2011**

 
| **(In thousands)**                                                                           | ** ** | **New Enterprise   Stone & Lime   Co., Inc.** | ** ** | **Guarantor   Subsidiaries** | ** ** | **Non   Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|------------------------------|------------|----------------------|------------|------------------|------------|-----------|------------|
| Revenue                                                                                           |       | $                                                                     | 647,564    |                         | $          | 82,742               |       | $                | 6,971      |      | $          | (11,878 | ) | $ | 725,399 |   |
| Cost of revenue (exclusive of items shown   separately below)                                     |       | 526,905                                                               |       | 61,167                       |       | 2,417                |       | (11,878          | )          | 578,611   |       |
| Depreciation, depletion and amortization                                                          |       | 38,111                                                                |       | 7,806                        |       | —               |       | —           |       | 45,917    |       |
| Pension and profit sharing                                                                        |       | 8,691                                                                 |       | 216                          |       | —               |       | —           |       | 8,907     |       |
| Selling, administrative and general expenses                                                      |       | 51,579                                                                |       | 9,628                        |       | 340                  |       | —           |       | 61,547    |       |
| Gain on disposals of property, equipment and   software                                           |       | (600                                                                  | )          | —                       |       | —               |       | —           |       | (600      | )          |
| Operating income                                                                                  |       | 22,878                                                                |       | 3,925                        |       | 4,214                |       | —           |       | 31,017    |       |
| Interest expense, net                                                                             |       | (40,479                                                               | )          | (15                          | )          | (774                 | )          | —           |       | (41,268   | )          |
| (Loss) income before income taxes                                                                 |       | (17,601                                                               | )          | 3,910                        |       | 3,440                |       | —           |       | (10,251   | )          |
| Income tax benefit                                                                                |       | (3,049                                                                | )          | (1,429                       | )          | —               |       | —           |       | (4,478    | )          |
| Equity in earnings of subsidiaries                                                                |       | 7,584                                                                 |       | —                       |       | —               |       | (7,584           | )          | —    |       |
| Net (loss) income                                                                                 |       | (6,968                                                                | )          | 5,339                        |       | 3,440                |       | (7,584           | )          | (5,773    | )          |
| Unrealized actuarial losses and amortization of   prior service costs, net of income tax          |       | 173                                                                   |       | —                       |       | —               |       | —           |       | 173       |       |
| Comprehensive (loss) income                                                                       |       | (6,795                                                                | )          | 5,339                        |       | 3,440                |       | (7,584           | )          | (5,600    | )          |
| Less: comprehensive income attributable to noncontrolling   interest                              |       | —                                                                |       | —                       |       | (1,195               | )          | —           |       | (1,195    | )          |
| Comprehensive (loss) income attributable to New   Enterprise Stone & Lime Co., Inc. |       | $                                                                     | (6,795     | )                            | $          | 5,339                |       | $                | 2,245      |      | $          | (7,584 | ) | $ | (6,795 | ) |

 

**Condensed Consolidating Statement of Cash Flows for the year ended February 28, 2013**

 
| **(In thousands)**                                | ** ** | **New Enterprise   Stone & Lime   Co., Inc.** | ** ** | **Guarantor   Subsidiaries** | ** ** | **Non   Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|--------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|------------------------------|------------|----------------------|------------|------------------|------------|-----------|------------|
|                                                   |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| **Cash flows from operating   activities**             |       | $                                                                     | 13,575     |                         | $          | 2,681                |       | $                | 3,774      |      | $          | — |   | $ | 20,030 |   |
| **Cash flows from investing   activities**             |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| Capital expenditures                                   |       | (39,259                                                               | )          | (3,135                       | )          | —               |       | —           |       | (42,394   | )          |
| Capitalized software                                   |       | (23                                                                   | )          | —                       |       | —               |       | —           |       | (23       | )          |
| Proceeds from sale of property and equipment           |       | 304                                                                   |       | —                       |       | —               |       | —           |       | 304       |       |
| Change in cash value of life insurance                 |       | (3,333                                                                | )          | —                       |       | —               |       | —           |       | (3,333    | )          |
| Change in restricted cash                              |       | 205                                                                   |       | (3                           | )          | (3                   | )          | —           |       | 199       |       |
| Net cash used in investing activities                  |       | (42,106                                                               | )          | (3,138                       | )          | (3                   | )          | —           |       | (45,247   | )          |
| **Cash flows from financing   activities**             |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| Proceeds from revolving credit                         |       | 224,729                                                               |       | —                       |       | —               |       | —           |       | 224,729   |       |
| Repayment of revolving credit                          |       | (298,361                                                              | )          | —                       |       | —               |       | —           |       | (298,361  | )          |
| Proceeds from issuance of long-term debt               |       | 268,641                                                               |       | —                       |       | —               |       | —           |       | 268,641   |       |
| Repayment of long-term debt                            |       | (154,548                                                              | )          | —                       |       | (654                 | )          | —           |       | (155,202  | )          |
| Payments on capital leases                             |       | (4,943                                                                | )          | —                       |       | —               |       | —           |       | (4,943    | )          |
| Debt issuance costs                                    |       | (14,062                                                               | )          | —                       |       | —               |       | —           |       | (14,062   | )          |
| Distribution to noncontrolling interest                |       | —                                                                |       | —                       |       | (1,083               | )          | —           |       | (1,083    | )          |
| Net cash provided by (used in) financing   activities  |       | 21,456                                                                |       | —                       |       | (1,737               | )          | —           |       | 19,719    |       |
| Net (decrease) increase in cash and cash   equivalents |       | (7,075                                                                | )          | (457                         | )          | 2,034                |       | —           |       | (5,498    | )          |
| **Cash and cash equivalents**                          |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| Beginning of period                                    |       | 7,106                                                                 |       | 476                          |       | 7,450                |       | —           |       | 15,032    |       |
| End of period                                          |       | $                                                                     | 31         |                         | $          | 19                   |       | $                | 9,484      |      | $          | — |   | $ | 9,534 |   |

 

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**Condensed Consolidating Statement of Cash Flows for the year ended February 29, 2012**

 
| **(In thousands)**                                | ** ** | **New Enterprise   Stone & Lime   Co., Inc.** | ** ** | **Guarantor   Subsidiaries** | ** ** | **Non   Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|--------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|------------------------------|------------|----------------------|------------|------------------|------------|-----------|------------|
|                                                   |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| **Cash flows from operating   activities**             |       | $                                                                     | 12,829     |                         | $          | 1,875                |       | $                | 6,193      |      | $          | (1,200 | ) | $ | 19,697 |   |
| **Cash flows from investing   activities**             |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| Capital expenditures                                   |       | (32,093                                                               | )          | (3,299                       | )          | —               |       | —           |       | (35,392   | )          |
| Capitalized software                                   |       | (8,562                                                                | )          | —                       |       | —               |       | —           |       | (8,562    | )          |
| Proceeds from sale of property and equipment           |       | 1,305                                                                 |       | 421                          |       | 990                  |       | —           |       | 2,716     |       |
| Change in cash value of life insurance                 |       | 2,825                                                                 |       | —                       |       | —               |       | —           |       | 2,825     |       |
| Change in restricted cash                              |       | 399                                                                   |       | 7                            |       | (8,841               | )          | —           |       | (8,435    | )          |
| Net cash used in investing activities                  |       | (36,126                                                               | )          | (2,871                       | )          | (7,851               | )          | —           |       | (46,848   | )          |
| **Cash flows from financing   activities**             |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| Proceeds from revolving credit                         |       | 145,477                                                               |       | —                       |       | —               |       | —           |       | 145,477   |       |
| Repayment of revolving credit                          |       | (98,500                                                               | )          | —                       |       | —               |       | —           |       | (98,500   | )          |
| Proceeds from issuance of long-term debt               |       | 12,398                                                                |       | —                       |       | —               |       | —           |       | 12,398    |       |
| Repayment of long-term debt                            |       | (27,038                                                               | )          | —                       |       | (2,095               | )          | —           |       | (29,133   | )          |
| Payments on capital leases                             |       | (5,329                                                                | )          | —                       |       | —               |       | —           |       | (5,329    | )          |
| Debt issuance costs                                    |       | (1,663                                                                | )          | —                       |       | —               |       | —           |       | (1,663    | )          |
| Dividends paid                                         |       | —                                                                |       | —                       |       | (1,200               | )          | 1,200            |       | —    |       |
| Distribution to noncontrolling interest                |       | —                                                                |       | —                       |       | (1,096               | )          | —           |       | (1,096    | )          |
| Net cash provided by (used in) financing   activities  |       | 25,345                                                                |       | —                       |       | (4,391               | )          | 1,200            |       | 22,154    |       |
| Net increase (decrease) in cash and cash   equivalents |       | 2,048                                                                 |       | (996                         | )          | (6,049               | )          | —           |       | (4,997    | )          |
| **Cash and cash equivalents**                          |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| Beginning of period                                    |       | 5,058                                                                 |       | 1,472                        |       | 13,499               |       | —           |       | 20,029    |       |
| End of period                                          |       | $                                                                     | 7,106      |                         | $          | 476                  |       | $                | 7,450      |      | $          | — |   | $ | 15,032 |   |

 

**Condensed Consolidating Statement of Cash Flows for the year ended February 28, 2011**

 
| **(In thousands)**                      | ** ** | **New Enterprise   Stone & Lime   Co., Inc.** | ** ** | **Guarantor   Subsidiaries** | ** ** | **Non   Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|----------------------------------------------|------------|-----------------------------------------------------------------------|------------|------------------------------|------------|----------------------|------------|------------------|------------|-----------|------------|
|                                         |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| **Cash flows from operating   activities**   |       | $                                                                     | 34,057     |                         | $          | 7,111                |       | $                | 6,335      |      | $          | — |   | $ | 47,503 |   |
| **Cash flows from investing   activities**   |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| Capital expenditures                         |       | (24,399                                                               | )          | (7,378                       | )          | —               |       | —           |       | (31,777   | )          |
| Capitalized software                         |       | (929                                                                  | )          | —                       |       | —               |       | —           |       | (929      | )          |
| Proceeds from sale of property and equipment |       | 1,167                                                                 |       | 1,073                        |       | —               |       | —           |       | 2,240     |       |
| Change in cash value of life insurance       |       | (962                                                                  | )          | —                       |       | —               |       | —           |       | (962      | )          |
| Change in restricted cash                    |       | (87                                                                   | )          | —                       |       | —               |       | —           |       | (87       | )          |
| Other investing activities                   |       | (25                                                                   | )          | (9                           | )          | —               |       | —           |       | (34       | )          |
| Net cash used in investing activities        |       | (25,235                                                               | )          | (6,314                       | )          | —               |       | —           |       | (31,549   | )          |
| **Cash flows from financing   activities**   |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| Proceeds from revolving credit               |       | 100,164                                                               |       | —                       |       | —               |       | —           |       | 100,164   |       |
| Repayment of revolving credit                |       | (121,065                                                              | )          | —                       |       | —               |       | —           |       | (121,065  | )          |
| Proceeds from issuance of long-term debt     |       | 250,000                                                               |       | —                       |       | —               |       | —           |       | 250,000   |       |
| Repayment of long-term debt                  |       | (218,424                                                              | )          | —                       |       | (756                 | )          | —           |       | (219,180  | )          |
| Payments on capital leases                   |       | (5,009                                                                | )          | —                       |       | —               |       | —           |       | (5,009    | )          |
| Debt issuance costs                          |       | (9,967                                                                | )          | —                       |       | —               |       | —           |       | (9,967    | )          |
| Distribution to noncontrolling interest      |       | —                                                                |       | —                       |       | (1,641               | )          | —           |       | (1,641    | )          |
| Net cash used in financing activities        |       | (4,301                                                                | )          | —                       |       | (2,397               | )          | —           |       | (6,698    | )          |
| Net increase in cash and cash equivalents    |       | 4,521                                                                 |       | 797                          |       | 3,938                |       | —           |       | 9,256     |       |
| **Cash and cash equivalents**                |       |                                                                  |       |                         |       |                 |       |             |       |      |       |
| Beginning of period                          |       | 537                                                                   |       | 675                          |       | 9,561                |       | —           |       | 10,773    |       |
| End of period                                |       | $                                                                     | 5,058      |                         | $          | 1,472                |       | $                | 13,499     |      | $          | — |   | $ | 20,029 |   |

 

**19. ********Unaudited Quarterly Financial Data**

 

The following is a summary of selected quarterly financial information (unaudited) for each of the quarterly periods in fiscal year 2013 and 2012:

 

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| ** **                                                                                        | ** ** | **2013**                | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                        | ** ** | **Quarters Ended** | ** ** |
| **(in thousands)**                                                                           | ** ** | **May 31**         | ** ** | **Aug 31** | ** ** | **Nov 30** | ** ** | **Feb 28** | ** ** |
|                                                                                              |       |                    |       |   |   |   |   |   |   |
| Revenue                                                                                           |       | $                       | 157,981    |   | $ | 260,542 |   | $ | 190,236 |   | $ | 68,331 |   |
| Operating income (loss)                                                                           |       | (6,671                  | )          | 31,735 |   | 1,977 |   | (48,886 | ) |
| Net income (loss)                                                                                 |       | (18,114                 | )          | 8,522 |   | (8,848 | ) | (37,694 | ) |
| Comprehensive income (loss) attributable to New   Enterprise Stone & Lime Co., Inc. |       | (18,342                 | )          | 8,202 |   | (9,167 | ) | (38,452 | ) |
|                                                                                                   |            |                         |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                                                        | ** ** | **2012**                | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                        | ** ** | **Quarters Ended** | ** ** |
| **(in thousands)**                                                                           | ** ** | **May 31**         | ** ** | **Aug 31** | ** ** | **Nov 30** | ** ** | **Feb 29** | ** ** |
|                                                                                              |       |                    |       |   |   |   |   |   |   |
| Revenue                                                                                           |       | $                       | 146,069    |   | $ | 266,216 |   | $ | 213,887 |   | $ | 79,762 |   |
| Operating income (loss)                                                                           |       | (1,201                  | )          | 37,397 |   | 22,319 |   | (53,782 | ) |
| Net income (loss)                                                                                 |       | (4,562                  | )          | 11,733 |   | 5,680 |   | (38,280 | ) |
| Comprehensive income (loss) attributable to New   Enterprise Stone & Lime Co., Inc. |       | (4,829                  | )          | 11,464 |   | 5,778 |   | (39,440 | ) |
|                                                                                                   |            |                         |            |  |  |  |  |  |  |  |  |  |  |

 

**20. ********Subsequent Event**

 

On March 4, 2013, the Company notified the trustee of its Secured Notes that it had selected to pay interest on the Secured Notes for the 12-month period commencing March 15, 2013 in the form of 5% cash payment and 8% payment in kind, which represents $14.9 million and $23.6 million, respectively.

 

On May 29, 2013, the Company entered into the third amendment to the ABL Facility, which provided increased short-term borrowing availability.  As part of the third amendment, the Company agreed to the following revised terms:  (i) the aggregate overall amount of the ABL Facility was reduced from $170.0 million to $145.0 million; (ii) through November 30, 2014, the Company is no longer required to maintain minimum excess availability (as defined in the ABL Facility); (iii)  the interest rate margin added to applicable LIBOR based borrowings has increased to a fixed 5%; (iv) the interest rate margin added to applicable Base Rate borrowings has increased to a fixed 3%; (v) the 1.25% floor applicable to LIBOR based borrowings has been removed; and (vi) to the extent that we dispose of assets that are ABL Priority Collateral and certain unencumbered assets, the net cash proceeds will be used to prepay outstanding borrowings under the ABL Facility and the overall ABL Facility will be reduced by $1 for each $1 of assets sold up to $15 million.

 

The third amendment did not change other significant terms of the ABL Facility such as the maturity, borrowing base formula, and covenants, as applicable.

 

The Company agreed to pay $0.3 million in fees to effect the third amendment to the ABL Facility and as a result of the reduction in the maximum borrowings of the ABL Facility the Company will also expense $0.7 million of unamortized deferred debt issuance costs to interest expense.

 

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**Item 9****.   ****        ****CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

None.

 

**Item 9A.   ****     ****CONTROLS AND PROCEDURES**

 

The information provided in this Item 9A — Controls and Procedures is as of the date of the filing of this amendment to Form 10-K.

 

This report includes the certifications attached as Exhibits 31.1 and 31.2 of our CEO and CFO required by Rule 13a-14 of the Securities Exchange Act of 1934, as amended. This Item 9A includes information concerning the controls and control evaluations referred to in those certifications.

 

***Evaluation of Disclosure Controls and Procedures***

 

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act are designed to provide reasonable assurance that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosures. Our management, under the supervision and with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of February 28, 2013. Based upon that evaluation, our CEO and CFO concluded that, as of February 28, 2013, our disclosure controls and procedures were not effective as a result of the material weaknesses in internal control over financial reporting described below.

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed under the supervision of the Company’s CEO and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”). Internal control over financial reporting includes those policies and procedures that:

 

(i)                                     pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

 

(ii)                                  provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors; and

 

(iii)                               provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the preparation of our financial statements for the years ended February 28, 2013, 2012 and 2011, management identified certain material weaknesses in our internal control over financial reporting as further described below.

 

We did not maintain an effective control environment primarily attributable to the following:

 

·                           We did not maintain an effective control environment that consistently emphasized adherence to GAAP. This control deficiency, which was identified in 2011 by the Company’s independent auditors and elevated to a material weakness in fiscal 2012 in part because of difficulties encountered with the ERP implementation, led to adjustments identified by both management and the Company’s independent auditors during the fiscal year 2013, 2012 and 2011 financial closing and reporting process.

 

As noted in our remediation plan below, we have hired professional finance resources to enhance accounting and aid in financial reporting and internal control capabilities.  Additionally, we reorganized existing resources to better match the accounting needs of the organization.

 

·                           In the areas of finance, tax, accounting and information technology departments, we did not ensure a sufficient complement of personnel with an appropriate level of knowledge, experience and training commensurate with our structure and accounting and financial reporting requirements, which was identified as a material weakness by management during the fiscal 2012 year-end financial reporting process.

 

As noted in our remediation plan below, we have hired professional finance resources to enhance accounting and aid in financial reporting and internal control capabilities. Specifically, we hired a Director of Financial Reporting, Business Unit Controller, Internal Audit resource and have appointed a new Chief Financial Officer.

 

·                           We did not ensure complete and accurate business documentation to support certain transactions and accounting records.  The controls in these areas with respect to the creation, maintenance and retention of complete and accurate business records were not effective. This was primarily attributable to the ERP implementation in fiscal year 2012 and identified by management and the Company’s independent auditors during the 2012 year-end financial reporting process.

 

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As noted in our remediation plan below, we are implementing policies and procedures to ensure that we maintain appropriate business and accounting records and formally document the application of generally accepted accounting principles for business transactions by fiscal year-end 2014.

 

·                           We did not design, maintain or implement policies and procedures to adequately review and account for significant accounting transactions, which was identified as a material weakness during the 2012 fiscal year-end financial reporting process. Specifically, we did not maintain and communicate sufficient and consistent accounting policies, which limited our ability to make accounting decisions and to detect and correct accounting errors.

 

As noted in our remediation plan below, we have provided internal control training to reinforce the importance of our control environment for Finance, Accounting, Information Technology Department personnel and all operations managers across the Company. We are implementing policies and procedures to ensure that we maintain appropriate business and accounting records and formally document the application of generally accepted accounting principles for business transactions which is expected to be completed by fiscal year-end 2014.

 

We did not maintain effective monitoring of controls:

 

·                           We did not maintain effective monitoring of controls in areas related to period end financial reporting process, revenue recognition, cash, contracts, inventory, property, plant and equipment and estimates in accruals. This deficiency resulted from either not having adequate controls designed and in place or not achieving the intended operating effectiveness of controls which was identified as a material weakness during the 2012 fiscal year-end financial reporting process by management and its independent auditors.

 

As noted in our remediation plan below we have provided internal control training to reinforce the importance of our control environment for Finance, Accounting, Information Technology Department personnel and all operations managers across the Company.

 

·                           We do not maintain an internal audit or similar function. As a result of this deficiency which was considered a material weakness during the 2012 year-end financial reporting process by management and its independent auditors, we did not have an adequate independent, objective body to assess, monitor, and evaluate the intended operating effectiveness of controls or to conduct operational audits for the identification of recommendations to improve operating effectiveness of the organization.

 

As noted in our remediation plan below, we have hired professional finance resources to enhance accounting and aid in financial reporting and internal control capabilities. Specifically, we hired a Director of Financial Reporting, Business Unit Controller, Internal Audit resource and have appointed a new Chief Financial Officer.  We will have a formal internal audit function in place by the fourth quarter of fiscal year 2014, which will report to the Audit Committee.

 

We did not maintain effective controls over risk assessment:

 

·                           We did not maintain processes to evaluate certain business and fraud risks. This deficiency resulted from either not having adequate controls designed and in place or not achieving the intended operating effectiveness of controls and was identified as a material weakness during the fiscal 2012 year-end financial reporting process by management.

 

As noted in our remediation plan below, we have performed an informal risk assessment and will formalize this risk assessment as our remediation efforts progress.

 

We did not maintain effective controls over information and communication:

 

·                           We did not maintain effective controls over information and communication, specifically around reports and financial data, as we had several issues with our ERP implementation. Thus, we had issues in providing the identification, capture, and exchange of information in a form and time frame that enabled our employees to carry out their responsibilities. Specifically, due to the system implementation, there were issues revolving around the actual information/reports provided, which proved to be a pervasive issue. This 

 

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deficiency which was identified by management and its independent auditors in Fiscal 2012, resulted from either not having adequate controls designed and in place or not achieving the intended operating effectiveness of controls.

 

As noted in our remediation plan below, in the locations that operate our new ERP, we have provided further training and made configuration changes such that our ERP is operating in a more effective manner. We have hired new information technology personnel, who are responsible for overseeing the completion of the ERP implementation and assisting with information technology general controls remediation. Additionally, we have provided internal control training to reinforce the importance of our control environment for Finance, Accounting, Information Technology Department personnel and all operations managers across the Company.

 

The material weaknesses in our control environment, monitoring of controls, information and communication, and risk assessments contributed to additional material weaknesses in various control activities as set forth below:

 

·                       We did not maintain effective controls over the implementation of a new ERP. Specifically, we did not implement appropriate logical security design and testing, perform sufficient data conversion testing, maintain appropriate system documentation, or provide sufficient end user training during the implementation of the ERP. During the implementation of the ERP, management did not provide appropriate logical security design and testing, perform sufficient data conversion testing, and maintain appropriate system documentation. This material weakness was identified by management and the Company’s independent auditors during the fiscal year 2012 financial reporting process. This material weakness contributed to other control issues described below.

 

As described above, we have provided training, made configuration changes to our ERP, and provided training to staff.

 

·                       We did not implement appropriate information technology controls related to change management, data integrity, access and segregation of duties. This material weakness, which was previously identified as a significant deficiency in prior years by our independent auditors and elevated to a material weakness in fiscal 2012 due to issues with our ERP implementation, resulted in both not having adequate automated and manual controls designed and in place and not achieving the intended operating effectiveness of controls to ensure accuracy of our financial reporting. For example, we did not maintain adequate segregation of duties around most accounting processes and did not have adequate integrity verification of our subledgers.

 

As noted in our remediation plan below, we have hired new information technology personnel, who are responsible for overseeing the completion of the ERP implementation and assisting with information technology general controls remediation. Additionally, we have provided internal control training to reinforce the importance of our control environment for Finance, Accounting, Information Technology Department personnel and all operations managers across the Company.  We have begun to assess the existing roles and responsibilities and remediate system access and functionality issues. Additionally, we have designated a full time IT resource to act in an IT governance role.

 

·                       We did not maintain effective controls over the recording of journal entries, both recurring and non-recurring. Specifically, effective controls were not in place to ensure that journal entries were properly prepared, included sufficient supporting documentation, or were reviewed and approved to ensure the validity, accuracy and completeness of the journal entries. For example, due to data conversion issues during the Company’s ERP implementation, recurring and manual journal entries were recorded duplicate times, in wrong periods and/or in reverse. This material weakness which was identified by management and the Company’s independent auditors during the 2012 year-end reporting process, resulted in additional procedures performed by management and contributed to other deficiencies, some of which have resulted in additional material weaknesses and adjustments during the fiscal year 2013 and 2012 year-end financial closing processes.

 

We have established an automated procedure around journal entry input where the ERP has been implemented which requires a second review and approval of journal entries.  Full remediation will take place once the ERP has been implemented at other locations in fiscal year 2015.

 

·                       We did not maintain effective controls over the recording of intercompany transactions. Specifically, effective controls were not in place to ensure that intercompany balances were properly reconciled and eliminated on a timely basis. For example, due to certain subsidiaries being converted to a new ERP system in January 2012, we did not initially match and reconcile intercompany billings and expenses.  This material weakness, which was identified by management and the Company’s independent auditors during the 2012

 

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financial reporting process, resulted in additional procedures performed by management and adjustments during the fiscal year 2013 and 2012 year-end financial closing and reporting process.

 

We have implemented manual processes and checklists to ensure the proper tracking and elimination of intercompany activity. Further, upon the implementation of the ERP at all locations, an automated process will be implemented to eliminate and track intercompany activity.

 

·                       We did not maintain effective controls over accounting for contracts. Specifically, we did not design and maintain effective controls over the reconciliation of contract billings and accruals to the general ledger, or formally analyze the recognition of contract revenue, profit and loss. For example, as a result of the ERP conversion, intercompany contracts were incorrectly classified as third party contracts and contract expenses for certain multi-year contracts were underaccrued.  This material weakness, which was identified by management during the 2012 financial reporting process, resulted in additional procedures performed by management and adjustments during the fiscal years 2013 and 2012 year-end financial closing and reporting processes.

 

We have established a manual process to track and eliminate intercompany activity as described above.  Additionally, we implemented a training program and analytical tools as of the first quarter of fiscal year 2014.

 

·                       We did not maintain effective controls to ensure the completeness and accuracy of recorded revenue. Specifically, we did not design and maintain effective controls over pricing, billing practices and credit memos. For example, during conversion to the new ERP several customers were invoiced incorrect prices which resulted in significant billing adjustments credit memos. This material weakness which was identified during the fiscal 2012 year-end audit by management, in conjunction with our independent auditors resulted in additional procedures performed by management and adjustments in both fiscal 2013 and 2012.

 

This material weakness related to recorded revenue existed at our Traffic Safety locations.  At the Traffic Safety locations during the first quarter of fiscal year 2014 we began implementation of a new billing system and updated and documented our revenue procedures.

 

·                       We did not maintain effective controls to ensure the completeness, accuracy, cutoff and valuation of accounts receivable. Specifically, we did not timely reconcile accounts receivable balances and did not implement and maintain a formal review process. Further, we did not have an effective process in place to determine and appropriately assess the adequacy of accounts receivable valuation reserves. There also is no required formal approval process to determine and write off uncollectible account balances.  This material weakness, which was identified by our independent auditors during the 2012 year-end audit, resulted in additional procedures performed by management and adjustments during the fiscal year 2013 and 2012 year-end financial closing and reporting processes.

 

We have developed integrity reports for the locations utilizing the new ERP to ensure subledger activity is properly posed to the general ledger.  We also implemented during the first quarter of fiscal year 2014 a new process to review the valuation of accounts receivable which requires approval by the CFO.

 

·                       We did not maintain effective controls over the completeness and accuracy of property, plant and equipment and related depreciation expense. Specifically, we did not design and maintain effective controls to ensure that assets are properly capitalized on our books. For example, certain capital expenditures were inappropriately expensed while other expenditures were inappropriately capitalized as fixed assets. This material weakness, which was identified by our independent auditors during our fiscal 2012 year-end audit, resulted in additional procedures performed by management and adjustments during the fiscal years 2013 and 2012 year-end financial closing and reporting processes.

 

We established a manual review process during the fourth quarter of fiscal year 2013 to review capital expenditures and formalized the capital expenditure policy which was approved by the Board of Directors during the first quarter of fiscal year 2014.

 

·                       We did not maintain effective controls over the completeness and accuracy of capitalized software costs and related amortization expense. Specifically, we did not design and maintain effective controls to ensure that capitalized

 

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software costs are properly capitalized on our books. For example, the company did not have a formal process in place to evaluate and determine the appropriate classification of costs incurred. This material weakness, which was identified by our independent auditors during the fiscal 2012 audit, resulted in additional procedures performed by management and adjustments during the fiscal years 2013 and 2012 year-end financial closing and reporting processes.

 

Management has not implemented any new material capitalized software projects since fiscal year 2013. Additionally, we have implemented a capital expenditure policy approved by the Board of Directors during the first quarter of fiscal year 2014.

 

·                       We did not maintain effective controls over the completeness and accuracy of our accounting estimates related to inventory reserves. Specifically, we did not design and maintain effective controls with respect to the review and analysis of excess and obsolete inventory and lower of cost or market considerations due to lack of empirical data available upon converting to our new ERP.  This material weakness, which was identified by management in conjunction with our independent auditors during the fiscal year 2012 audit, resulted in adjustments identified through additional procedures performed by management in fiscal years 2013 and 2012.

 

We have implemented physical inventory observation procedures at certain locations in lieu of a failed perpetual system.  We have created system reports to provide inventory information at our Traffic Safety locations to identify and assess lower of cost or market and obsolete inventory issues.

 

·                       We did not maintain effective controls over the estimation process related to changes in asset retirement obligations and related activity. Specifically, we did not design and maintain effective controls to ensure that changes in asset retirement obligations were properly estimated and recorded timely on our books. This material weakness, which was identified by the Company’s independent auditors during the year-end fiscal 2012 reporting process, resulted in additional procedures performed by management and adjustments during the fiscal year 2013 and 2012 year-end financial closing and reporting processes.

 

While not fully implemented, we have established a manual process to review asset retirement obligations related activity.  We expect to formally document the controls to ensure more robust review procedures are implemented by fiscal year-end 2014.

 

·                       We did not maintain effective controls over the completeness, accuracy and cutoff of our inventory counts. Specifically, we did not design and maintain effective controls and policies with respect to physical inventory counting procedures, including the appropriate level of review. For example, we did not ensure results of physical inventory counts were completely and accurately recorded in the newly implemented ERP system. We also did not initially capitalize inventory variances for materials, labor, and overhead.  This material weakness, which was identified by the Company’s independent auditors during the fiscal 2012 year-end financial reporting process, resulted in adjustments identified through additional procedures performed by management in fiscal years 2013 and 2012.

 

As mentioned above, we have implemented monthly physical inventory observations at certain locations of the Company.  Additionally, we have contracted for third party physical inventory observations to be performed at our quarry locations twice a year.

 

·                       We did not maintain effective controls to ensure the completeness and timely recording of accounts payable and accrued liabilities. Specifically, we did not timely reconcile accounts payable and accrued liabilities or properly accrue for invoices payable in the period. For example, invoices for certain receipts of goods and services were improperly recorded in the period after they were received while other invoices were incorrectly recorded twice during the ERP implementation. This material weakness which was identified by management and the Company’s independent auditors during the year-end fiscal 2012 reporting process, resulted in additional procedures performed by management and adjustments identified by management and our independent auditors for fiscal year 2013 and 2012.

 

In addition to the implementation of integrity reports for locations operating on the new ERP, we have also established training, reports, and procedures around the accounts payable and Accrual process as of the first quarter of fiscal year 2014.

 

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·                       We did not maintain effective controls over the completeness, accuracy and valuation of our deferred tax assets and liabilities. Specifically, we did not design and maintain effective controls with respect to accounting for the difference between the book and tax bases of the company’s property, plant and equipment and capital leases. This material weakness which was identified by management and our independent auditors in fiscal 2011 resulted in additional procedures performed by management and adjustments identified by management and our independent auditors during the fiscal year 2013, 2012, 2011 year-end financial closing and reporting processes.

 

We have contracted third party advisors to provide training and support related to our tax provision preparation.

 

·                       We did not adequately segregate the duties of personnel within our Accounting Department, including those related to cash management, payroll processing, accounts payable processing, and accounts receivable and general ledger maintenance, due to an insufficient complement of staff. This material weakness which was identified by our independent auditors in prior years but elevated to a material weakness in fiscal year 2012, resulted in additional procedures performed by management and adjustments identified by management and our independent auditors during the fiscal year 2013, 2012 and 2011 year-end financial closing and reporting processes.

 

Working with a third party advisor, we have completed an assessment of our internal control processes and as of Q1 2014 we have begun restructuring personnel and duties to address the deficiencies.

 

Misstatements could result in substantially all of the accounts and disclosures associated with the material weaknesses described above and as a result a material misstatement in our annual or interim consolidated financial statements would not be prevented or detected in a timely manner. Management has performed procedures designed to determine the reliability of our financial reporting and related financial statements and we believe the consolidated financial statements included in this report as of and for the period ended February 28, 2013, are fairly stated in all material respects.

 

***Plans for Remediation of Material Weaknesses***

 

At the direction and with the full support of executive management, we continue our efforts to improve our internal control over financial reporting. In the locations that operate our new ERP, we have provided further training and made configuration changes such that our ERP is operating in a more effective manner. In addition, over the past year, we have made progress in improving our internal control processes and procedures, including documenting our business processes. We have drafted a formal plan to remediate each of the identified material weaknesses which we anticipate will commence in the fiscal quarter ending August 31, 2013 and we expect to have remediation efforts finalized in fiscal year 2015. The remediation plan has been approved by our Board of Directors as of the date of this filing. As of the date of this filing, we have also established a steering committee that will provide oversight and direction, with accountability to the Board of Directors, for the remediation of the material weaknesses. Specific initiatives to date have been focused on the following:

 

·                                          We have hired professional finance resources to enhance accounting and aid in financial reporting and internal control capabilities. Specifically, we hired a Director of Financial Reporting, Business Unit Controller, Internal Audit resource and have appointed a new Chief Financial Officer,

 

·                                          We have hired a third party advisor, who is assisting management with its remediation efforts,

 

·                                          We have hired new information technology personnel, who are responsible for overseeing the completion of the ERP implementation and assisting with information technology general controls remediation,

 

·                                          We have provided internal control training to reinforce the importance of our control environment for Finance, Accounting, Information Technology Department personnel and all operations managers across the Company,

 

·                                          We have implemented a series of management reports to augment our analytical processes,

 

·                                          We have performed an informal risk assessment and will formalize this risk assessment as our remediation efforts progress.

 

The formal testing and evaluation of these controls are expected to be completed by the issuance of the fiscal year 2014 financial statements.

 

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The following remediation efforts are expected to be completed by fiscal year-end 2014:

 

·                                          We are implementing policies and procedures to ensure that we maintain appropriate business and accounting records and formally document the application of generally accepted accounting principles for business transactions,

 

·                                          We are performing a review of existing Accounting, Tax and Information Technology Department personnel with the goals of enhancing our complement of resources with a higher degree of accounting and internal control knowledge, experience, and training,

 

·                                          We are documenting and formalizing our period end financial reporting processes, including the implementation of a monthly close checklist and formal policies and procedures concerning journal entries, account reconciliations, accrued expenses and estimates. We anticipate this will increase the accuracy and efficiency of our monthly close process,

 

·                                          We are implementing policies and procedures to ensure that we maintain appropriate business and accounting records and formally document the application of generally accepted accounting principles for business transactions,

 

·                                          We are performing a review of existing Accounting, Tax and Information Technology Department personnel with the goals of enhancing our complement of resources with a higher degree of accounting and internal control knowledge, experience, and training,

 

·                                          We are documenting and formalizing our period end financial reporting processes, including the implementation of a monthly close checklist and formal policies and procedures concerning journal entries, account reconciliations, accrued expenses and estimates. We anticipate this will increase the accuracy and efficiency of our monthly close process,

 

·                                          We are implementing policies and procedures to ensure revenue is properly valued and recognized,

 

The formal testing and evaluation of these controls are expected to be completed early in fiscal year 2015.

 

The following remediation efforts are expected to be completed by fiscal year end 2015:

 

·                                          Although every employee signs a code of ethics when hired, we are instituting an annual code of ethics review process to reinforce, both internally and externally, our commitment to a strong effective control environment, with high ethical standards and financial reporting integrity.

 

·                                          We are implementing procedures and controls to ensure the segregation of duties within the organization, and to ensure that any issues with information technology general controls are identified, formalized and remediated throughout the organization.

 

We believe the plan described above, when implemented, will improve the design and operating effectiveness of our internal control over financial reporting. As we continue our remediation efforts over internal control over financial reporting, we will perform additional procedures to determine that our financial statements continue to be fairly stated in all material respects. We do not anticipate that we will be able to remediate all of the material weaknesses during our fiscal year ending February 28, 2014.

 

***Management’s Annual Report on Internal Control Over Financial Reporting***

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management assessed the effectiveness of our internal control over financial reporting as of February 28, 2013. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on this assessment, our management concluded that, as of February 28, 2013, our internal control over financial reporting was ineffective due to the material weaknesses set forth above.

 

***Changes in Internal Control Over Financial Reporting***

 

In the last fiscal quarter of fiscal year 2013, there were no changes in the Company’s internal control over financial reporting that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.  However, subsequently, the Company made certain changes to its internal controls over financial reporting described above under “Plans for Remediation of Material Weaknesses” to address the reported material weaknesses.

 

**Item 9B****.****                          ****OTHER INFORMATION.**

 

None.

 

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**PART III**

 

**Item 10****.****                            ****DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.**

 

Our directors and executive officers and their respective ages and positions as of August 30, 2013 are set forth below:

 
| **Name**                     | ** ** | **Age** | ** ** | **Position**                                                                                                                         |
|------------------------------|------------|---------|------------|--------------------------------------------------------------------------------------------------------------------------------------|
| Paul   I. Detwiler, Jr. |       | 78      |       | Director,   Chairman of the Board and Executive Committee Member                                                                     |
| Donald   L. Detwiler         |       | 69      |       | Director,   Vice Chairman of the Board and Executive Committee Member                                                                |
| Paul   I. Detwiler, III |       | 54      |       | President,   Chief Executive Officer, Secretary, Director, and Executive Committee Member                                            |
| James   W. Van Buren         |       | 47      |       | Director   and Executive Committee Member                                                                                            |
| Albert   L. Stone            |       | 53      |       | Senior   Vice President and Chief Financial Officer                                                                                  |
| Steven   B. Detwiler         |       | 50      |       | Senior   Vice President-Construction Materials, President, Buffalo Crushed Stone   Division, Director and Executive Committee Member |
| Donald   Devorris            |       | 77      |       | Director                                                                                                                             |
| William   A. Gettig          |       | 86      |       | Director                                                                                                                             |
| F.   James McCarl            |       | 66      |       | Director                                                                                                                             |
| Larry   R. Webber            |       | 66      |       | Director                                                                                                                             |

 

***Paul I. Detwiler, Jr.*** has served as the Company’s Chairman since the recapitalization in 1990. Prior to the recapitalization, Mr. Detwiler was the President. Mr. Detwiler has served as one of our directors since 1972. Mr. Detwiler graduated from Gettysburg College with a degree in business. Mr. Detwiler is the father of Paul I. Detwiler, III, Steven B. Detwiler and Jeffrey D. Detwiler and the cousin of Donald L. Detwiler. Mr. Detwiler’s demonstrated leadership in the building materials supply and highway contracting industry, his extensive and intimate knowledge of our business due to over 40 years with the Company, and his experience as a former senior executive officer of the Company contributed to our conclusion that he should serve as a director of the Company.

 

***Donald L. Detwiler*** served as our Chief Executive Officer from 1992 to 2013 and served as President from 1990 until 2011.  Mr. Detwiler has served as one of our directors since 1972. Mr. Detwiler graduated from Juniata College with a B.S. in Finance & Geology. Mr. Detwiler is the father-in-law of James W. Van Buren and the cousin of Paul I. Detwiler, Jr. Mr. Detwiler’s demonstrated leadership in the building materials supply and highway contracting industry, his extensive and intimate knowledge of our business due to over 40 years with the Company, and his experience as a former senior executive officer of the Company contributed to our conclusion that he should serve as a director of the Company.

 

***Paul I. Detwiler, III*** has served as our President since 2011, as our Secretary since 1994 and as our Chief Executive Officer since 2013.  From 1994 to 2013, Mr. Detwiler served as our Chief Financial Officer. Mr. Detwiler has served as a director since 1992. From 1992 until 2011, Mr. Detwiler served as Executive Vice President. Prior to this, he served as manager of the Company’s Information Services Division, where he developed the Company’s programming and automation systems departments.  Mr. Detwiler graduated from Lehigh University in 1981 with a B.S. in Information Science. Mr. Detwiler is the son of Paul I. Detwiler, Jr. and the brother of Steven B. Detwiler and Jeffrey D. Detwiler. Mr. Detwiler’s demonstrated leadership in the building materials supply and highway contracting industry, his extensive and intimate knowledge of our business due to over 20 years with the Company, his experience as our Chief Executive Officer and President, and his prior experience as our Executive Vice President, contributed to our conclusion that he should serve as a director of the Company.

 

***James W. Van Buren*** served as our Executive Vice President from 2011 to 2013, as our Chief Operating Officer from 2000 to 2013, as a director since 1996 and as President of Work Area Protection Corp. from 2011 to 2013. From 1996 until 2011, he was our Vice President-Development. Prior to this, he was our production coordinator in the Contract Division. Prior to joining the Company, he was a real estate analyst and appraiser for four years with Thomas J. Maher in Philadelphia. Mr. Van Buren graduated from Juniata College in 1986 with a B.S. in Environmental Biology and received a Master of Business Administration from St. Francis College in 1996. Mr. Van Buren is the son-in-law of Donald L. Detwiler. Mr. Van Buren’s demonstrated leadership in the building materials supply and highway contracting industry, his extensive and intimate knowledge of our business due to over 15 years with the Company, and his experience as our former Executive Vice President and Chief Operating Officer, contributed to our conclusion that he should serve as a director of the Company.

 

***Albert L. Stone***has served as our Senior Vice President and Chief Financial Officer since March 22, 2013.  Mr. Stone previously served as U.S. Chief Financial Officer of Aggregates Industries, a leading producer of aggregate-based construction materials in the United States and the United Kingdom, which he held since 1997.  Prior to this, Mr. Stone served as Chief Financial Officer of Bardon, Inc. since 1995.  Mr. Stone received a Masters of Business Administration from The College of William and Mary in 1988 and a Bachelor of Arts degree from the University of Vermont in 1981.

 

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***Steven B. Detwiler*** has served as our Senior Vice President-Construction Materials since 2011. Prior to that, he served as our Vice President-Aggregates since 2000. Mr. Detwiler has served as the President of Buffalo Crushed Stone Division since 2000. Prior to this, Mr. Detwiler was Vice President of Valley Quarries, Inc.  From 1990 to 1993, he was the manager of the Equipment & Supply Division of the Company. Mr. Detwiler has served as one of our directors since 1998. Before joining the Company in 1990, Mr. Detwiler spent six years in the United States Army where he was honorably discharged at the rank of Captain. Mr. Detwiler graduated with a B.S. from the United States Military Academy in West Point, New York. Mr. Detwiler is the son of Paul I. Detwiler, Jr. and the brother of Paul I. Detwiler, III and Jeffrey D. Detwiler. Mr. Detwiler’s demonstrated leadership in the building materials supply and highway contracting industry, his extensive and intimate knowledge of our business due to over 20 years with the Company, and his experience as an officer of several of our divisions, contributed to our conclusion that he should serve as a director of the Company.

 

***Donald Devorris*** has served as a director of NESL since 1990. Mr. Devorris is currently President of Blair Electric, where has worked since 1959. Mr. Devorris has a B.S. degree in electrical engineering from Penn State University. Mr. Devorris’ senior management experience, including as President of Blair Electric, and his prior service as president and director of several non-public companies contributed to our conclusion that he should serve as a director of the Company.

 

***William A. Gettig*** has served as a director of NESL since 1990. Mr. Gettig is currently Chief Executive Officer of Gettig Technologies, Inc., where he has worked since 1952. Mr. Gettig is the sole shareholder of Gettig Technologies, Inc., which owns GPI Aviation, Inc., Stelrema Corporation and Beacon Tool, Inc. Each of these entities and Mr. Gettig and his wife personally declared bankruptcy under the United States Bankruptcy Code in 2005. The bankruptcy plans were confirmed in 2007. Mr. Gettig has a B.S. degree in mechanical engineering from Trine University (formerly known as Tri-State University). Mr. Gettig’s senior management experience, including as Chief Executive Officer of Gettig Technologies, Inc., along with his extensive service on the boards of several banking institutions and universities, contributed to our conclusion that he should serve as a director of the Company.

 

***F. James McCarl*** has served as a director of NESL since 2008. Mr. McCarl is currently Chief Executive Officer of the McCarl Group, where he has worked since 2003. Prior to holding this position, Mr. McCarl was president of McCarl’s Inc., where he worked from 1968 through 2002. Mr. McCarl has a B.A. degree in economics from the University of Pittsburgh and a Small Company Management Program certificate from Harvard Business School. Mr. McCarl’s senior management and business consulting experience, including as Chief Executive Officer of the McCarl Group, his experience in the construction industry as the chief financial officer and chief operating officer of a construction company, and his extensive service on the boards of several non-public companies contributed to our conclusion that he should serve as a director of the Company.

 

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***Larry R. Webber*** has served as a director of NESL since December 2008. Mr. Webber is currently managing director of the Institute for Strategic Management, where he has worked since 2009. Prior to that he was President of L.R. Webber Associates, Inc., where he worked from 1976 through 2006. Mr. Webber has a B.A. in economics from Westminster College and an M.A. in industrial relations from St. Francis University. Mr. Webber’s strategic management and business consulting experience, including as a managing director of Institute for Strategic Management and as executive officer of L.R. Webber Associates, Inc., along with over 36 years of experience as a business advisor contributed to our conclusion that he should serve as a director of the Company.

 

In addition to the information presented above regarding each director’s specific experiences, qualifications attributes and skills, we believe that all of our directors have a reputation for integrity and adherence to high ethical standards. Each of our directors has demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to us and our board.

 

**Director Independence**

 

We are not a listed issuer whose securities are listed on a national securities exchange or in an inter-dealer quotation system which has requirements that a majority of the board of directors be independent. However, if we were a listed issuer whose securities were traded on the New York Stock Exchange and subject to such requirements, we would be entitled to rely on the controlled company exception contained in Section 303A of the NYSE Listed Company Manual for exception from the independence requirements related to the majority of our board of directors and for the independence requirements related to our compensation committee. Pursuant to Section 303A of the NYSE Listed Company Manual, a company of which more than 50% of the voting power is held by an individual, a group or another company is exempt from the requirements that its board of directors consist of a majority of independent directors and that the compensation committee of such company be composed solely of independent directors. Each of Paul I. Detwiler, Jr. and Donald L. Detwiler beneficially owns 50% of the voting power of the Company which would qualify the Company as a controlled company eligible for exemption under the rule.

 

**Board Committees**

 

Our board of directors has an audit committee, a compensation committee, an executive committee and an independent committee. All of the committees, other than the executive committee, are comprised entirely of independent, non-management directors.

 

***Audit Committee***

 

The audit committee assists our board of directors with its oversight of the quality and integrity of our accounting, auditing and reporting practices. Pursuant to its charter, the audit committee makes recommendations to our board of directors for the appointment, compensation and retention of the independent auditor. The audit committee’s primary responsibilities, which it is in the process of implementing, under its written charter include the following:

 

·                  reviewing and discussing our financial statements and management’s discussion and analysis of financial condition and results of operations disclosure with management and the independent auditors;

 

·                  reviewing and discussing our earnings releases and any financial information or earnings guidance given, if any, to investors, creditors, financial analysts and credit rating agencies; and

 

·                  reviewing and discussing the Company’s risk assessment and risk management policies.

 

Our audit committee is comprised of Messrs. Devorris, Gettig, McCarl and Webber. Mr. Devorris is the Chairman of the audit committee. Our board of directors has determined that all members of our audit committee are independent.  Although our board of directors has determined that each of the members of our audit committee is financially literate and has experience analyzing or evaluating financial statements, at this time we do not have an “audit committee financial expert” within the meaning of Item 407 of Regulation S-K under the Exchange Act serving on the audit committee. As a company whose stock is privately-held and given the financial sophistication and other business experience of the members of the audit committee, we do not believe that we require the services of an audit committee financial expert at this time.

 

***Executive Committee***

 

Our executive committee’s function is to act without full approval of our board of directors as to matters only in unusual situations, that, in the judgment of the executive committee, require immediate action where approval by the full board of directors is impractical, provide guidance to our board of directors and the holders of our Series of Class A Voting Common Stock in their decision-making process, and to make recommendations to our board of directors. Our executive committee is comprised of Messrs. Paul I. Detwiler, Jr., Donald L. Detwiler, Paul I. Detwiler, III, James W. Van Buren and Steven B. Detwiler. Paul I. Detwiler, Jr. also is the Chairman of the executive committee.

 

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***Independent Committee***

 

Our independent committee’s function is to discuss the facts and circumstances of any dispute arising among our stockholders in their capacities as managers of our businesses when such dispute involves the operation and management of our businesses. Our independent committee is comprised of Messrs. Devorris, Gettig, McCarl and Webber. Mr. Gettig is the chairman of our independent committee. Our board of directors has determined that all members of our independent committee are independent.  This committee has not formally convened as there have been no events which would require their attention to date.

 

***Special Committee***

 

In connection with the third amendment, we also agreed with M&T that our board of directors would create a special committee consisting of our four non-employee directors, which we refer to as the special committee, that has engaged an advisor to develop a business plan that focuses on cost reductions and operational efficiencies, which we refer to as the Plan. Under the terms of the third amendment, the Plan must be reasonably acceptable in scope, timing and process to M&T.   On July 18, 2013, the Plan was unanimously approved by the members of the special committee and by our entire board of directors, which authorized the special committee to oversee the implementation of the Plan by management.  On July 19, 2013 the plan was submitted to M&T for its review and on August 15, 2013, M&T informed the Company that the Plan is not acceptable in scope, timing and process.  The Company believes that the concerns with the Plan expressed by M&T go beyond scope, timing and process.  The Company is currently engaged in discussions with M&T to resolve differences over the Plan and is confident that those differences will be resolved. 

 

**Code of Ethics**

 

As a privately held company we are not obligated to adopt a formal code of ethics, however we are in the process of upgrading our corporate governance and we plan to adopt a formal code of ethics in the near future.

 

**Item 11****.****                            ****EXECUTIVE COMPENSATION.**

 

**Our Named Executive Officers**

 

Our Chief Executive Officer and Chief Financial Officer at the end of fiscal year 2013 and the three other most highly compensated executive officers in fiscal year 2013 (which we refer to collectively as our named executive officers) are as follows:

 

·                  Paul I. Detwiler, Jr. - Director, Chairman of the Board and Executive Committee member;

 

·                  Donald L. Detwiler - Chief Executive Officer (at end of fiscal year 2013), Director, Vice Chairman of the Board and Executive Committee member;

 

·                  Paul I. Detwiler, III — Chief Executive Officer (commencing March 2013), President, Chief Financial Officer (at end of fiscal year 2013) and Secretary, Director and Executive Committee member;

 

·                  James W. Van Buren - Executive Vice President (at end of fiscal year 2013), Chief Operating Officer (at end of fiscal year 2013), Director, Executive Committee member. In July 2013, Mr.Van Buren resigned as Executive Vice President and Chief Operating Officer of the company and as President of Work Area Protection Corp; and

 

·                  Steven B. Detwiler –– Senior Vice President-Construction Materials, Director, Executive Committee Member and President of Buffalo Crushed Stone Division.

 

**Compensation Discussion and Analysis**

 

**Our Compensation Philosophy and Objectives**

 

We are a privately-held company founded and wholly-owned by one family, the Detwiler family, and our senior management team, including all of our named executive officers, includes many third and fourth generation members of the Detwiler family. As a result, our executive compensation philosophy is streamlined. The compensation of our named executive officers, including our Chairman and Vice Chairman of the Board, for fiscal year 2013 was determined, reviewed and approved by our Chairman of the Board and Vice Chairman of the Board with significant input and direction from our Chief Executive Officer and our former Chief Operating Officer.

 

Our executive compensation has four components to it:

 

·                  base salary;

 

·                  bonuses;

 

·                  retirement benefits; and

 

·                  perquisites and other personal benefits.

 

Our goal is to ensure that our compensation practices are market, facilitate appropriate retention and reward superior performance. The components to our executive compensation are determined with the goal of motivating executives and adequately compensating and rewarding them on a day-to-day basis for the time spent and the services they perform for our company. However, as a result of the fact that our named executive officers are all members of the family which owns the Company, the compensation of our named executive officers is significantly influenced by the private negotiations between such individuals concerning their compensation, which is based upon the requests of such individuals, the performance of the Company and the ability of the Company to pay the determined compensation.

 

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**Elements of Compensation**

 

***Base Salaries***.  Base salaries are fixed in amount and not tied to performance.  Our objective in establishing base salaries is to offer adequate and stable compensation to our named executive officers on a day-to-day basis for their work.  Our named executive officers’ base salaries depend on their position within the company and the scope of their responsibilities.  As of the end of fiscal year 2013, the base salaries of our Chairman of the Board and our Vice Chairman of the Board generally move in tandem.  Similarly, as of the end of fiscal year 2013, the base salaries of our Chief Executive Officer and our Chief Operating Officer generally move in tandem.  The exact amount of our named executive officers’ base salary is reviewed annually.  In reviewing base salaries, we consider:

 

·                  the scope and/or changes in individual responsibilities;

 

·                  overall compensation of the executive;

 

·                  overall compensation for all our executive officers and employees;

 

·                  market changes in compensation;

 

·                  our financial condition and results of operations; and

 

·                  individual performance.

 

Base salaries for each of Paul I. Detwiler, Jr. and Donald L. Detwiler for fiscal year 2014 have remained approximately the same as compared to base salaries for fiscal year 2013.

 

***Bonuses***.  Our named executive officers are awarded cash bonuses based upon performance and the other discretionary elements described below.  Our objective in establishing bonuses is to motivate executives to excel in their work, enhance retention and adequately reward outstanding services to our company.  Bonuses for fiscal year 2013 were determined based on the following elements (each of which is not exclusive and with no particular weight assigned to any):

 

·                  market changes in compensation;

·                  the requests of the individual named executive officers; and

·                  our financial condition and results of operations.

 

Final bonus decisions for fiscal year 2013 were by private negotiation amongst our named executive officers, which are made by our Chairman of the Board and our Vice Chairman of the Board in consultation with our Chief Executive Officer and our former Chief Operating Officer. Bonuses are generally awarded annually at the end of the performance period. However, bonuses are also paid from time to time during the year to our named executive officers on a discretionary basis to reward specific accomplishments in connection with our operations or to cover certain expenses described under “Perquisites and Other Personal Benefits” below. A portion of the bonus awarded for fiscal year 2013 to each of Paul I. Detwiler, Jr. and Donald L. Detwiler was to reimburse such individual for their tax obligation resulting from their indirect interest in South Woodbury L.P. See “Certain Relationships and Related Party Transactions.” In addition, a portion of the bonus awarded for fiscal year 2013 to each of Paul I. Detwiler, III, Steven B. Detwiler and James W. Van Buren was based on the amount of premiums for life insurance policies owned by trusts created by Mr. Paul Detwiler, Mr. Steven Detwiler and Mr. Van Buren.

 

***Retirement Benefits***.  We provide certain retirement benefits to our executive officers in the form of an executive benefit plan which provides deferred compensation benefits as a reward to certain of our executives and other key employees and provides such persons with the opportunity to defer the receipt of certain compensation.  Another important part of our compensation is our company-wide 401(k) plan.  Our objective in establishing these plans is to enhance retention of our executive officers and employees in the long-term by providing them with flexibility in tax and financial planning and superior payout awards in a tax-efficient manner if they remain with us for at least four years or until retirement.  Our named executive officers do not currently participate in our Executive Benefit Plan although they could be eligible for it.  They do, however, participate in our company-wide 401(k) Plan.

 

***Perquisites and Other Personal Benefits***.  We provide the following perquisites and other personal benefits to our named executive officers:

 

·                  we have subscribed for company life insurance policies for each of our named executive officers and pay all premiums under such policies;

 

·                  we pay or reimburse our named executive officers for membership dues in various country clubs;

 

·                  we pay an annual car allowance to each of our named executive officers; and

 

·                  we lease various aircraft and pay the charges related to the use of such aircraft by our named executive officers.

 

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We believe that extending these perquisites to our named executive officers is appropriate for the operation and management of our business which is heavily dependent on the ability of our executives to serve and travel rapidly and extensively throughout our geographic markets.

 

***Other Compensation***.  We are wholly-owned by our founding family members and do not have any equity awards or other equity-incentive performance based compensation.  We do not have employment agreements or change of control agreements with our named executive officers who are all part of our founding owner family; however, we may have the need for these agreements in the future.  Because we are a privately-owned company, federal securities law provisions relating to shareholder advisory votes on executive compensation do not apply to us.

 

**Compensation Committee**

 

Our Compensation Committee is comprised of Messrs. Devorris, Gettig, McCarl and Webber. Mr. Webber is the Chairman of the Compensation Committee.  Our Board of Directors has determined that all members of our Compensation Committee are independent.

 

Our Compensation Committee has not been active historically.  However, we anticipate that in the future our Compensation Committee will review and make recommendations regarding:

 

·                  the review, assessment and determination of the compensation of our management team;

 

·                  the performance of our executive officers and management team and adjustments to compensation and employment status; and

 

·                  our incentive and benefit plans.

 

**Compensation Committee Report**

 

Our Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this Report.

 

 
|   | Members of the Compensation Committee: |
|--------|----------------------------------------|
|   |                                   |
|   | Donald Devorris                        |
|   | William A. Gettig                      |
|   | F. James McCarl                        |
|   | Larry R. Webber, Chair                 |

 

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**Summary Compensation Table**

 

The following table summarizes the compensation paid to our named executive officers for services rendered to us in all capacities during fiscal years 2011, 2012 and 2013:

 
| **Name and********Principal Position**                                                                                                                                                                            | ** ** | **Year**         | ** ** | **Salary******** ($)** | ** ** | **Bonus******** ($)**  | ** ** | **Non-Equity******** Incentive******** Plan********Compensation******** ($)** | ** ** | **Change in Pension Value********and Nonqualified Deferred********Compensation Earnings******** ($) (1)** | ** ** | **All Other********Compensation******** ($)** | ** **    | **Total******** ($)**        | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------|------------|-----------------------------|------------|-----------------------------|------------|----------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|---------------|-----------------------------------|------------|
| Paul   I. Detwiler, Jr.

Director,   Chairman of the Board and Executive Committee Member                                                                                                                         |       | 2013

2012

2011 |       | 432,436

426,484

425,000   |       | 513,788

620,247

1,087,618 |       | 0

0

0                                                                                      |       | 19,973

12,250

11,126                                                                                                                            |       | 55,093

26,720

69,214

                           | (2)

(2)

(2) | 1,021,290 

1,085,701 

1,592,958 |       |
|                                                                                                                                                                                                                        |       |             |       |                        |       |                        |       |                                                                                         |       |                                                                                                                                              |       |                                                    |          |                              |       |
| Donald   L. Detwiler

Director,   Vice Chairman, Chief Executive Officer (at end of fiscal year 2013), and   Executive Committee Member                                                                                |       | 2013

2012

2011 |       | 434,545

426,914

425,000   |       | 377,522

488,617

935,796   |       | 0

0

0                                                                                      |       | 15,234

12,250

11,126                                                                                                                            |       | 57,430

29,232

43,932                                  | (3)

(3)

(3) | 884,731 

957,013 

1,415,854     |       |
|                                                                                                                                                                                                                        |       |             |       |                        |       |                        |       |                                                                                         |       |                                                                                                                                              |       |                                                    |          |                              |       |
| Paul   I. Detwiler, III

President,   Chief Executive Officer (commencing March 2013) Chief Financial Officer (at   end of fiscal year 2013) and Corporate Secretary, Director and Executive   Committee Member   |       | 2013

2012

2011 |       | 335,780

334,113

325,000   |       | 69,666

251,923

631,025    |       | 0

0

0                                                                                      |       | 15,075

12,250

11,126                                                                                                                            |       | 20,374

11,766

16,752                                  | (4)

(4)

(4) | 440,895 

610,052 

983,903       |       |
|                                                                                                                                                                                                                        |       |             |       |                        |       |                        |       |                                                                                         |       |                                                                                                                                              |       |                                                    |          |                              |       |
| James   W. Van Buren

Executive-Vice   President (at end of fiscal year 2013), Chief Operating Officer (at end of   fiscal year 2013), Director and Executive Committee Member                                         |       | 2013

2012

2011 |       | 338,305

336,477

325,000   |       | 56,196

239,842   609,579   |       | 0

0

0                                                                                      |       | 15,376

12,250

11,126                                                                                                                            |       | 23,358

17,739

14,204                                  | (5)

(5)

(5) | 433,235 

606,308 

959,909       |       |
|                                                                                                                                                                                                                        |       |             |       |                        |       |                        |       |                                                                                         |       |                                                                                                                                              |       |                                                    |          |                              |       |
| Steven B. Detwiler

Senior Vice President-Construction   Materials,

Director and Executive Committee Member                                                                                                                |       | 2013

2012

2011 |       | 321,798 319,196

305,000    |       | 31,286 206,358

509,263     |       | 0

0

0                                                                                      |       | 13,902

12,250

11,126                                                                                                                            |       | 18,894 20,390

20,184                                   | (6) (6)

(6)  | 385,880 558,194

845,573          |       |

 

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(1)                                         Includes only the amount contributed to 401(k) plans.

(2)                                         Includes company paid life insurance premiums ($8,481 in fiscal years 2013 and 2012, respectively and $10,953 in fiscal year 2011), country club membership dues ($1,053, $1,140 in fiscal years 2013 and 2012, respectively), use of company aircraft ($25,646, $11,166 and $55,948 in fiscal years 2013, 2012 and 2011, respectively), use of company automobile ($2,313 in fiscal years 2013, 2012 and 2011, respectively), company paid legal services ($13,980 in fiscal year 2013) and company paid supplemental disability insurance premiums ($3,620 in both fiscal years 2013 and 2012, respectively).

(3)                                         Includes company paid life insurance premiums ($4,446 in fiscal years 2013 and 2012, respectively and $5,970 in fiscal year 2011), country club membership dues ($4,482, $2,144 and $6,074 in fiscal years 2013, 2012 and 2011, respectively), use of company aircraft ($24,650, $14,263 and $29,575 in fiscal years 2013, 2012 and 2011, respectively), use of company automobile ($2,313 in fiscal years 2013, 2012 and 2011, respectively), company paid legal services ($15,473 in fiscal year 2013) and company paid supplemental disability insurance premiums ($6,066 in both fiscal years 2013 and 2012, respectively).

(4)                                         Includes company paid life insurance premiums ($1,581 in fiscal years 2013 and 2012, respectively and $1,857 in fiscal year 2011), use of company aircraft ($13,831, $3,217 and $11,076 in fiscal years 2013, 2012 and 2011, respectively), use of company automobile ($1,813 in fiscal years 2013, 2012 and 2011, respectively) and company paid supplemental disability insurance premiums ($3,149, $5,155 and $2,006 in fiscal years 2013, 2012 and 2011, respectively).

(5)                                         Includes company paid life insurance premiums ($1,185 in fiscal years 2013, 2012, respectively and $1,365 in fiscal year 2011), country club membership dues ($5,892, $5,517 and $3,938 in fiscal years 2013, 2012 and 2011, respectively), use of company aircraft ($13,516, $6,213 and $5,029 in fiscal years 2013, 2012 and 2011, respectively), use of company automobile ($1,813 in fiscal years 2013, 2012 and 2011, respectively) and company paid supplemental disability insurance premiums ($952, $3,011 and $2,059 in fiscal years 2013, 2012 and 2011, respectively).

(6)                                         Includes company paid life insurance premiums ($1,365, $1,365 and $1,545 in 2013, 2012 and 2011, respectively), country club membership dues ($10,359, $8,749 and $10,936 in 2013, 2012   and 2011, respectively), use of company aircraft ($4,277, $3,987 and $3,734 in 2013, 2012 and 2011, respectively), use of company automobile ($1,813, $1,813 and $1,813 in 2013, 2012    and 2011, respectively) and company paid supplemental disability insurance premiums   ($1,080, $4,476 and $2,156 in 2013, 2012 and 2011, respectively).

 

***401(k) Retirement Plan*****. **We maintain a tax-qualified retirement plan named the New Enterprise Stone & Lime Co., Inc. 401(k) Savings and Retirement Plan (the “401(k) Plan”) that provides eligible employees with an opportunity to save for retirement on a tax advantaged basis.  The 401(k) Plan allows eligible employees to contribute a percentage of their eligible compensation on a pre-tax basis subject to applicable Internal Revenue Code limits, and also permits executive officers to contribute on a post-tax basis.  For executive officers, we match 100% of their elective deferral contributions, up to 3% of their total annual eligible compensation.  We may also contribute a profit sharing contribution on behalf of eligible participants in an amount determined in our discretion.  Matching and profit sharing contributions vest 20% per year after completing one year of service, and are 100% vested after five years of service.  Our named executive officers participate in our 401(k) Plan.

 

**Change of Control**

 

We do not have change of control agreements with our named executive officers who are all part of our founding owner family.

 

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**Director Compensation**

 

Our non-executive directors receive an annual retainer of $10,000 and a fee of $2,500 for each meeting of the board of directors or committee meeting which they attend.  We also reimburse our non-executive directors for expenses incurred to attend meetings of our board of directors or committees.  Our board of directors meets quarterly and may act by unanimous written consent or call special meetings between regularly scheduled board meetings, as necessary.  Additional compensation may be paid to our directors in connection with special assignments, as may be determined by our board of directors from time to time.  No such additional compensation has been paid to any non-executive director since March 1, 2012.

 

**Director Compensation Table for Fiscal Year 2013**

 

The table below summarizes the compensation paid by us and earned or accrued by non-employee directors during fiscal year 2013.

 
| **Name**          | ** ** | **Fees Earned or********Paid in Cash ($)** | ** ** | **Change in Pension Value and******** Nonqualified Deferred********Compensation Earnings ($)** | ** ** | **All Other******** Compensation   ($) (1)** | ** ** | **Total ($)** | ** ** |
|-------------------|------------|---------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|--------------------|------------|
| Donald Devorris   |       | 40,000                                                              |       | —                                                                                                                                 |       | —                                                      |       | 40,000             |       |
| William A. Gettig |       | 42,500                                                              |       | —                                                                                                                                 |       | —                                                      |       | 42,500             |       |
| F. James McCarl   |       | 40,000                                                              |       | —                                                                                                                                 |       | 11,281                                                      |       | 51,281             |       |
| Larry R. Webber   |       | 42,500                                                              |       | —                                                                                                                                 |       | —                                                      |       | 42,500             |       |

 

----

(1)         Includes compensation for travel.

 

**Compensation and Risk Management**

 

We believe that our compensation and benefit programs have been appropriately designed to attract and retain talent and properly incentivize employees.  Certain factors in our compensation policies ensure that our named executive officers are not encouraged to take unnecessary risks in managing our business.  Those factors include the multiple elements of our compensation programs which combine a balanced mix of fixed compensation with performance-based compensation and payouts to reward superior performance.  We have determined that any risks arising from our compensation programs and policies are not reasonably likely to have a material adverse effect on us, our subsidiaries and operations.

 

**Compensation Committee Interlocks and Insider Participation**

 

None of our officers serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers who serve on our Board of Directors or Compensation Committee.  None of the members of our Compensation Committee is or was formerly an officer or employee of our company.

 

 

**Item 12****. ****                         ****SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.**

 

We have a Series of Class A Voting Common Stock, with a par value of $1.00, which we refer to as Class A Stock, and a Series of Class B Non-Voting Stock, with a par value of $1.00, which we refer to as Class B Stock. As of May 17, 2013, there were 500 shares of Class A Stock issued and outstanding and 273,285 shares of Class B Stock issued and outstanding.

 

We have no equity compensation plans.

 

Each holder of Class A Stock is entitled to one vote per share of Class A Stock, and each holder of Class B Stock is not entitled to vote except as otherwise mandated by Delaware law.

 

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The following table sets forth information, as of May 17, 2013, regarding the beneficial ownership of our common stock. Except as disclosed in the footnotes to this table, we believe that each stockholder identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the stockholder. Unless otherwise provided, the address of each individual or entity listed below is c/o New Enterprise Stone & Lime Co., Inc., 3912 Brumbaugh Road, P.O. Box 77, New Enterprise, Pennsylvania 16664.

 
| **Name of Beneficial**                                                                                  | ** ** | **Shares of Class A******** Common Stock******** Beneficially Owned** | ** ** | **Shares of Class B******** Common Stock******** Beneficially******** Owned** | ** ** | **% Total Voting******** Power** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| **Owner**                                                                                                         | ** ** | **Number**                                                                                               | ** ** | **%**                                                                                                            | ** ** | **Number**                                      | ** ** | **%** | ** ** | **%** | ** ** |
| Paul I. Detwiler, Jr.(1)                                                                                     |       | 250                                                                                                      |       | 50.0                                                                                                             |       | 105,425                                         |       | 38.6 |   | 50.0 |   |
| Donald L. Detwiler(2)                                                                                             |       | 250                                                                                                      |       | 50.0                                                                                                             |       | 62,060                                          |       | 22.7 |   | 50.0 |   |
| Paul I. Detwiler, III & Sandra K.   Detwiler(3)                                                     |       | —                                                                                                   |       | —                                                                                                           |       | 8,400                                           |       | 3.1 |   | — |   |
| Steven B.   Detwiler & Gina M. Detwiler(4)                                                               |       | —                                                                                                   |       | —                                                                                                           |       | 8,400                                           |       | 3.1 |   | — |   |
| Kim D. Van   Buren & James W. Van Buren(5)                                                               |       | —                                                                                                   |       | —                                                                                                           |       | 8,400                                           |       | 3.1 |   | — |   |
| Paul I. Detwiler, III                                                                                        |       | —                                                                                                   |       | —                                                                                                           |       | 11,333.3                                        |       | 4.1 |   | — |   |
| Steven B. Detwiler                                                                                                |       | —                                                                                                   |       | —                                                                                                           |       | 11,333.3                                        |       | 4.1 |   | — |   |
| Joann D. Bull                                                                                                     |       | —                                                                                                   |       | —                                                                                                           |       | 4,200                                           |       | 1.5 |   | — |   |
| Jennifer D. DeLong                                                                                                |       | —                                                                                                   |       | —                                                                                                           |       | 4,200                                           |       | 1.5 |   | — |   |
| Jeffrey D. Detwiler                                                                                               |       | —                                                                                                   |       | —                                                                                                           |       | 15,533.3                                        |       | 5.7 |   | — |   |
| Kim D. Van Buren                                                                                                  |       | —                                                                                                   |       | —                                                                                                           |       | 17,000                                          |       | 6.2 |   | — |   |
| Karen D. Bascom                                                                                                   |       | —                                                                                                   |       | —                                                                                                           |       | 17,000                                          |       | 6.2 |   | — |   |
| Donald L. Detwiler 2000 GST Exempt Trust for Karen   D. Bascom dated December 6, 2000(6)                     |       | —                                                                                                   |       | —                                                                                                           |       | 31,030                                          |       | 11.4 |   | — |   |
| Donald L. Detwiler 2000 GST Exempt Trust for Kim   D. Van Buren dated December 6, 2000(7)                    |       | —                                                                                                   |       | —                                                                                                           |       | 31,030                                          |       | 11.4 |   | — |   |
| Paul I. Detwiler, Jr. 2000 GST Exempt Trust   for Paul I. Detwiler, III dated December 27, 2000(8) |       | —                                                                                                   |       | —                                                                                                           |       | 18,849                                          |       | 6.9 |   | — |   |
| Paul I. Detwiler, Jr. 2000 GST Exempt Trust   for Steven B. Detwiler dated December 27, 2000(9)         |       | —                                                                                                   |       | —                                                                                                           |       | 18,849                                          |       | 6.9 |   | — |   |
| Paul I. Detwiler, Jr. 2000 GST Exempt Trust   for Joann D. Bull dated December 27, 2000(10)             |       | —                                                                                                   |       | —                                                                                                           |       | 24,439                                          |       | 8.9 |   | — |   |
| Paul I. Detwiler, Jr. 2000 GST Exempt Trust   for Jennifer D. DeLong dated December 27, 2000(11)        |       | —                                                                                                   |       | —                                                                                                           |       | 24,439                                          |       | 8.9 |   | — |   |
| Paul I. Detwiler, Jr. 2000 GST Exempt Trust   for Jeffrey D. Detwiler dated December 27, 2000(12)       |       | —                                                                                                   |       | —                                                                                                           |       | 18,849                                          |       | 6.9 |   | — |   |
| **Named Executive Officers and   Directors**                                                                      |       |                                                                                                     |       |                                                                                                             |       |                                            |       |   |   |   |   |
| Paul I. Detwiler, Jr.(1)                                                                                     |       | 250                                                                                                      |       | 50.0                                                                                                             |       | 105,425                                         |       | 38.6 |   | 50.0 |   |
| Donald L. Detwiler(2)                                                                                             |       | 250                                                                                                      |       | 50.0                                                                                                             |       | 62,060                                          |       | 22.7 |   | 50.0 |   |
| Paul I. Detwiler, III(13)                                                                                    |       | —                                                                                                   |       | —                                                                                                           |       | 38,582.3                                        |       | 14.1 |   | — |   |
| Steven B. Detwiler(14)                                                                                            |       | —                                                                                                   |       | —                                                                                                           |       | 38,582.3                                        |       | 14.1 |   | — |   |
| James W. Van Buren(15)                                                                                            |       | —                                                                                                   |       | —                                                                                                           |       | 56,430                                          |       | 20.6 |   | — |   |
| All directors and current executive officers as a   group (10 persons)(16)                                        |       | 500                                                                                                      |       | 100.0                                                                                                            |       | 232,351.7                                       |       | 85.0 |   | 100.0 |   |

 

----

(1)                                         Represents shares of Class A Common Stock owned by Paul I. Detwiler, Jr. and shares of Class B Common Stock owned by certain trusts described in footnotes 8, 9, 10, 11 and 12 below of which Paul I. Detwiler, Jr. is deemed to have beneficial ownership as a result of his relationship to one or more of the co-trustees of the trusts.

(2)                                         Represents shares of Class A Common Stock owned by Donald L. Detwiler and shares of Class B Common Stock owned by certain trusts described in footnotes 6 and 7 below of which Donald L. Detwiler is deemed to have beneficial ownership as a result of his relationship to one or more of the co-trustees of such trusts.

(3)                                        Such shares are held by tenancy in the entirety.

(4)                                         Such shares are held by tenancy in the entirety.

(5)                                         Such shares are held by tenancy in the entirety.

(6)                                         Represents shares of Class B Common Stock held of record for the benefit of Karen D. Bascom, who also owns shares of Class B Common Stock in her own name. Lynnea K. Detwiler and Karen D. Bascom are co-trustees of such trust and have shared voting and investment power over the shares listed in the table.

(7)                                         Represents shares of Class B Common Stock held of record for the benefit of Kim D. Van Buren, who also owns shares of Class B Common Stock in her own name. Lynnea K. Detwiler and Kim D. Van Buren are co-trustees of such trust and have shared voting and investment power over the shares listed in the table.

(8)                                         Represents shares of Class B Common Stock held of record for the benefit of Paul I. Detwiler, III, who also owns shares of Class B Common Stock in his own name. Patricia Detwiler and Paul I. Detwiler, III are co-trustees of such trust and have

 

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shared voting and investment power over the shares listed in the table.

(9)                                         Represents shares of Class B Common Stock held of record for the benefit of Steven B. Detwiler, who also owns shares of Class B Common Stock in his own name. Patricia Detwiler and Steven B. Detwiler are co-trustees of such trust and have shared voting and investment power over the shares listed in the table.

(10)                                  Represents shares of Class B Common Stock held of record for the benefit of Joann D. Bull, who also owns shares of Class B Common Stock in her own name. Patricia Detwiler and Joann D. Bull are co-trustees of such trust and have shared voting and investment power over the shares listed in the table.

(11)                                  Represents shares of Class B Common Stock held of record for the benefit of Jennifer D. DeLong, who also owns shares of Class B Common Stock in her own name. Patricia Detwiler and Jennifer D. DeLong are co-trustees of such trust and have shared voting and investment power over the shares listed in the table.

(12)                                  Represents shares of Class B Common Stock held of record for the benefit of Jeffrey D. Detwiler, who also owns shares of Class B Common Stock in his own name. Patricia Detwiler and Jeffrey D. Detwiler are co-trustees of such trust and have shared voting and investment power over the shares listed in the table.

(13)                                  Represents 8,400 shares of Class B Common Stock held by tenancy in the entirety with his wife, 18,849 shares of Class B Common Stock held beneficially by the Paul I. Detwiler, Jr. 2000 GST Exempt Trust for Paul I. Detwiler, III dated December 27, 2000 of which Mr. Detwiler is a co-trustee and 11,333.3 shares of Class B Common Stock held directly.

(14)                                  Represents 8,400 shares of Class B Common Stock held by tenancy in the entirety with his wife, 18,849 shares of Class B Common Stock held beneficially by the Paul I. Detwiler, Jr. 2000 GST Exempt Trust for Steven B. Detwiler dated December 27, 2000 of which Mr. Detwiler is a co-trustee and 11,333.3 shares of Class B Common Stock held directly.

(15)                                  Represents 8,400 shares of Class B Common Stock held by tenancy in the entirety with his wife, 31,030 shares of Class B Common Stock held beneficially by the Donald L. Detwiler 2000 GST Exempt Trust for Kim D. Van Buren dated December 27, 2000 of which Mr. Van Buren’s wife is a co-trustee and 17,000 shares of Class B Common Stock held directly by Mr. Van Buren’s wife.

(16)                                  Includes shares of Class B Common Stock owned by certain trusts described in footnotes 6 through 12 above, of which our executive officers are deemed to have beneficial ownership as a result of relationships to one or more of the co-trustees for certain of the trusts.

 

We do not have change of control agreements with our named executive officers who are all part of our founding owner family. If an executive officer who participates in our Executive Benefit Plan is terminated without cause or resigns for good reason within the two-year period immediately following a change of control, he or she will become immediately and fully vested in his or her entire account balance in the Executive Benefit Plan and such account balance will be paid to him or her in an immediate lump sum.

 

In connection with Mr. Van Buren’s resignation as Executive Vice President and Chief Operating Officer of the Company on July 17, 2013, we entered into an Agreement and General Release with Mr. Van Buren which provides for a severance payment of $565,195.00 payable to Mr. Van Buren in one lump sum and COBRA payments for Mr. Van Buren through July 31, 2014 and for Mr. Van Buren’s spouse through January 31, 2015 in consideration for a release of all claims against the Company from Mr. Van Buren.

 

**Item 13****.****                            ****CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.**

 

**Related Party Transactions**

 

As set forth in the Audit Committee Charter, the Audit Committee is responsible for reviewing, approving or ratifying all related party transactions for potential conflicts of interest and overseeing all related party transactions on an ongoing basis as described in Item 404 of Regulation S-K under the Exchange Act. The Company has not adopted a standalone written related-party transaction policy. When a potential related-party transaction is identified, management presents it to the Audit Committee, which consists entirely of independent directors, to determine whether to approve or ratify it. The Audit Committee reviews the material facts of the related-party transaction and either approves or disapproves of the entry into the transaction. If advance approval of a related-party transaction is not feasible, then the transaction will be considered and, if the Audit Committee determines it to be appropriate, ratified by the Audit Committee. No director may participate in the approval of a transaction for which he or she is a related party (other than with respect to executive compensation).

 

**Stock Restriction and Management Agreement**

 

On March 1, 1990, we entered into a stock restriction and management agreement, which we refer to as the stock restriction agreement, with Paul I. Detwiler, Jr. and Donald L. Detwiler, each of whom we refer to individually as a voting stockholder and collectively as the voting stockholders. The stock restriction agreement includes, among other things, restrictions on the transfer of common stock, provisions regarding the voting of the common stock as it relates to our board of directors and provisions regarding the management and operation of the Company.

 

*Right of First Refusal and Restrictions on Transfer of Common Stock*

 

Under the stock restriction agreement, the ability of the voting stockholders to transfer their shares of common stock is generally subject to a right of first refusal unless the transfer is to a spouse or lineal descendant. If the shares to be transferred to a spouse or lineal descendant are shares of voting stock, such transferee must at the time of such transfer be, and have been for the two years immediately preceding the transfer, active in our management. The voting stockholders are also restricted from transferring shares of common stock to any person or entity conducting a commercial enterprise engaged in business operations which compete directly or indirectly with us.

 

If the proposed transfer is to someone other than a spouse or lineal descendant, we have a right of first refusal to purchase shares of common stock proposed to be transferred by either voting stockholder. If we decide not to exercise our right of first refusal, the other voting stockholder (in the case of voting common stock) and all of our remaining stockholders (in the case of non-voting common stock) may purchase the shares that are proposed to be transferred. If a voting stockholder ceases to be one of our full time employees (subject to certain exceptions), an offer will be deemed made by such voting stockholder to sell such voting stockholder’s common stock, allowing us to repurchase such shares.

 

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*Offer Rights*

 

The voting stockholders had put rights which required us to purchase at any time all or some of such voting stockholder’s common stock. If we were unable to purchase the common stock by reason of a legal or contractual impediment, then the voting stockholders, subject to the terms and restrictions set forth in the stock restriction agreement, may have sold the voting common to other purchasers. On August 22, 2011, the stockholders of the Company amended the stock restriction agreement which, among other things, required the Company to purchase, at any time, all or some of a stockholder’s common stock at the option of the individual stockholders. The amendment eliminated the stockholder’s right to require the Company to purchase the common stock on a prospective basis.

 

*Additional Issuances*

 

We are prohibited from issuing any additional capital stock unless: (i) we receive consideration at least equal to the stated or par value of the common stock or the per share net book value of the preferred stock or (ii) it is to one of our directors, officers or employees pursuant to one of our plans.

 

*Public Offering*

 

The rights and obligations affecting the disposition of our common stock as set forth in the stock restriction agreement are terminated upon an initial public offering.

 

*Voting*

 

Each voting stockholder is entitled to nominate 50% of the directors entitled to vote. Each voting stockholder shall vote his shares of voting common stock for his and the other voting stockholder’s nominees. An elected nominee’s vacant position will be filled by the voting stockholder who originally selected the nominee. If a voting stockholder dies or is mentally disabled, his permitted transferee(s) will set forth the nominations. Any disagreement among such transferees will be resolved by a majority vote. Each transferee has one vote for each share of his voting stock. Once a nominee is chosen, all transferees must vote for him or her.

 

Absent a contrary agreement and so long as each voting stockholder is able, each voting stockholder shall be entitled to nominate the same number of emeritus directors, which are non-voting directors, and vote for the other’s nominees. Only a voting stockholder (not any permitted transferees) may nominate an emeritus director. An emeritus director vacancy will be filled only if the voting stockholders agree to fill it.

 

*Management*

 

Each voting stockholder manages certain operations of the Company. If a managerial dispute arises, the voting stockholders agree to refer it to the Independent Committee for a recommendation to be approved by our board of directors.

 

Each voting stockholder must take certain actions in connection with the management of our business, including, but not limited to, maximizing investment returns, abiding by a cash management plan, adhering to a budget, utilizing a certain amount for capital improvements, establishing certain job descriptions and corporate policies and taking actions to maintain the independence of our board of directors.

 

*Restrictive Covenants*

 

The voting stockholders are subject to non-competition provisions while employed by us and, subject to limited exceptions, for a period of five years from the date upon which such voting stockholder’s employment is terminated or such voting stockholder offers to sell his common stock. These non-competition provisions prohibit such voting stockholder from directly or indirectly owning, managing, operating, joining, controlling or participating in the ownership, management, operation or control of or be employed or otherwise connected in any manner with any commercial enterprise that is engaged in business operations which compete directly or indirectly with us.

 

In addition, during the five year period described above, neither voting stockholder may: (i) solicit or aid in the solicitation of any business from any of our customers or (ii) disclose, or utilize on behalf of himself or any other person or business entity, any proprietary right of ours in any product, method or procedure whether or not such product, method or procedure is patented, trademarked or copyrighted.

 

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*Sale or Liquidation of the Company*

 

All obligations to purchase or sell the common stock under the stock restriction agreement shall be terminated if: (i) we sell all or substantially all of our assets to be followed by a liquidation or (ii) an agreement is reached pursuant to which 90% of our issued and outstanding capital stock will be sold.

 

**Transferee Stock Restriction Agreement**

 

Each of the non-voting stockholders of the Company, with the exception of the trusts, have executed a Transferee Stock Restriction Agreement. The terms of the Transferee Stock Restriction Agreements, which we refer to as the transferee restriction agreements, are substantially similar to the terms of the stock restriction agreement, except the transferee restriction agreements: (i) do not include any terms regarding the management of our company and (ii) include a provision requiring the stockholder to vote any shares of voting stock acquired from the voting stockholders for directors nominated by such voting stockholder and (iii) include certain nomination rights in the event of the death or permanent mental disability of a voting stockholder. The transferee restriction agreements were amended to eliminate the stockholder’s right to require the Company to purchase the common stock on a prospective basis.

 

**Leases**

 

We lease our headquarters located in South Woodbury Township, Pennsylvania and an office building in Roaring Spring pursuant to two lease agreements with South Woodbury LP, a limited partnership controlled by trusts for the benefit of the Detwiler family and in which the Company owns a 1.0% general partnership interest. Both lease agreements expire on May 31, 2023, and each has one five year option to extend.

 

Under the South Woodbury Township headquarters lease, we lease 15.62 acres of land and an office building consisting of approximately 70,000 square feet in South Woodbury Township, Bedford County, Pennsylvania. The annual base rent for this lease is $2.0 million, which may be reset to a fair market rate as provided in the lease.

 

We also lease two tracts of land consisting of approximately 5.75 acres and an office building consisting of approximately 23,528 square feet in the borough of Roaring Spring, Blair County, Pennsylvania. The annual base rent is approximately $0.4 million which may be reset to a fair market rate as provided in the lease.

 

In each of the fiscal years 2013, 2012 and 2011, we paid annual rent under these leases in the amount of $2.4 million.

 

Except as noted above, we believe each of the related party transactions are on an arm’s length basis.

 

**Item 14****.****                            ****PRINCIPAL ACCOUNTANT FEES AND SERVICES.**

 

The following presents fees for professional audit services rendered by PricewaterhouseCoopers LLP, who we refer to as PwC, for the audit of the Company’s annual consolidated financial statements for fiscal years 2013 and 2012, and fees for other services rendered by PwC for fiscal years 2013 and 2012.

 
| **(in thousands)** | ** ** | **2013** | ** ** | **2012** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|
| Audit fees (1)          |       | $        | 3600       |     | $          | 2,731 |   |
| Audit-related fees (2)  |       | 24       |       | 141      |       |
| Tax fees (3)            |       | —   |       | 30       |       |
| All other fees (4)      |       | 3        |       | 173      |       |
|                    |       | $        | 3,627      |     | $          | 3,075 |   |

 

----

(1)                     Audit Fees. This category includes fees and expenses billed by PwC for the audits of the Company’s financial statements and for the reviews of the financial statements included in the Company’s quarterly reports. Fiscal year 2012 included certain costs associated with the offering of our 13% senior secured notes due 2018 in March 2012 and the registration of our 11% senior notes due 2018 under the Securities Act. This category also includes services associated with periodic reports and other documents issued in connection with securities offerings, including for the offering of our 11% senior notes due 2018 in August 2010.

 

(2)                     Audit-Related Fees. This category includes fees and expenses billed by PwC for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements. This category includes fees for due diligence, other audit-related accounting and reporting services related to significant acquisitions and certain agreed upon services.

 

(3)                    Tax Fees. This category includes fees and expenses billed by PwC for tax compliance and planning services and tax advice.

 

(4)                     All Other Fees. This category includes fees billed for products and services provided by PwC, other than services reported in items (1) through (3) above and include certain information systems reviews not performed in conjunction with the audit and licensing fees for software products.

 

Audit and other services provided by our principal accounting firm are reviewed and discussed by our Audit Committee and Chief Financial Officer.

 

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**PART IV**

 

**Item 15****.****                            ****EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.**

 

(a)  Documents filed as a part of this report:

 

(1)       Financial Statements and Supplementary Data

 

Consolidated Financial Statements for the Fiscal Year Ended February 28, 2013.

 

(2)       Financial Statement Schedules

 

Financial statement schedules have been omitted because they are not applicable or the information required therein is included elsewhere in the financial statements or notes thereto.

 

(3)       Exhibits required by Item 601 of Regulation S-K

 

The following exhibits are being filed as part of this Annual Report on Form 10-K:

 
| 3.1    |   | Amended   and Restated Certificate of Incorporation of New Enterprise Stone &   Lime Co., Inc. (incorporated by reference from the Company’s   registration statement on Form S-4 (file no. 333-176538) filed on   August 29, 2011).   |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                |
| 3.2    |   | Amended   and Restated Bylaws of New Enterprise Stone & Lime Co., Inc.   (incorporated by reference from the Company’s registration statement on   Form S-4 (file no. 333-176538) filed on August 29, 2011).                           |
|   |   |                                                                                                                                                                                                                                                                |
| 4.1    |   | Indenture,   dated August 18, 2010, by and among the Company and Wells Fargo Bank,   National Association (incorporated by reference from the Company’s   registration statement on Form S-4 (file no. 333-176538) filed on   August 29, 2011). |
|   |   |                                                                                                                                                                                                                                                                |
| 4.2    |   | Certificate   for the Company’s 11% Senior Notes due 2018 (incorporated by reference from   the Company’s registration statement on Form S-4 (file no. 333-176538)   filed on August 29, 2011).                                                 |
|   |   |                                                                                                                                                                                                                                                                |
| 4.3    |   | Certificate   for the Company’s Notation of Note Guarantee (incorporated by reference from   the Company’s registration statement on Form S-4 (file no. 333-176538)   filed on August 29, 2011).                                                |

 

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| 4.4    |   | Form of   the Company’s Exchange 11% Senior Notes due 2018 (incorporated by reference   from the Company’s registration statement on Form S-4/A (file no.   333-176538) filed on September 12, 2011).                                                                                                  |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 4.5    |   | Form of   Notation of Exchange Note Guarantee (incorporated by reference from the   Company’s registration statement on Form S-4 (file no. 333-176538) filed   on August 29, 2011).                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 4.6    |   | Registration   Rights Agreement, dated August 18, 2010, by and among the Company, the   Guarantors party thereto and Banc of America Securities LLC (incorporated by   reference from the Company’s registration statement on Form S-4 (file   no. 333-176538) filed on August 29, 2011).                   |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 4.7    |   | Indenture,   dated March 15, 2012, by and between the Company and Wells Fargo Bank,   National Association (incorporated by reference from the Company’s current   report on Form 8-K (file no. 333-176538) filed on March 21, 2012).                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 4.8    |   | Global   Notes for the Company’s 13% Senior Secured Notes due 2018 (incorporated by   reference from the Company’s current report on Form 8-K (file no.   333-176538) filed on March 21, 2012).                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 4.9    |   | Registration   Rights Agreement, dated March 15, 2012, by and among the Company, the   Guarantors party thereto and Merrill Lynch, Pierce Fenner & Smith   Incorporated (incorporated by reference from the Company’s current report on   Form 8-K (file no. 333-176538) filed on March 21, 2012). |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 4.10   |   | Security   Agreement, dated March 15, 2012, by and among the Company, the   Guarantors party thereto and Wells Fargo Bank, National Association   (incorporated by reference from the Company’s current report on Form 8-K   (file no. 333-176538) filed on March 21, 2012).                                |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 4.11   |   | Patent   Security Agreement, dated March 15, 2012, by and among the Company, the   Guarantors party thereto and Wells Fargo Bank, National Association   (incorporated by reference from the Company’s current report on Form 8-K   (file no. 333-176538) filed on March 21, 2012).                         |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 4.12   |   | Trademark   Security Agreement, dated March 15, 2012, by and among the Company, the   Guarantors party thereto and Wells Fargo Bank, National Association   (incorporated by reference from the Company’s current report on Form 8-K   (file no. 333-176538) filed on March 21, 2012).                      |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 4.13   |   | Mortgage   Modification Agreement, dated March 15, 2012, by and among the Company,   the Guarantors party thereto and Wells Fargo Bank, National Association   (incorporated by reference from the Company’s current report on Form 8-K   (file no. 333-176538) filed on March 21, 2012).                   |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 4.14   |   | Intercreditor   Agreement, dated March 15, 2012, by and among the Company, the   Guarantors party thereto and Wells Fargo Bank, National Association (incorporated   by reference from the Company’s current report on Form 8-K (file no.   333-176538) filed on March 21, 2012).                           |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 10.1   |   | Purchase   Agreement, dated August 18, 2010, by and among the Company, the Initial   Purchasers and Banc of America Securities LLC (incorporated by reference from   the Company’s registration statement on Form S-4 (file no. 333-176538)   filed on August 29, 2011) .                                   |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 10.2   |   | Credit   Agreement, dated March15, 2012, by and among Manufacturers and Traders Trust   Company, the Lenders defined therein, and the Company (incorporated by   reference from the Company’s current report on Form 8-K (file no.   333-176538) filed on March 21, 2012).                                       |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 10.3   |   | Security   Agreement, dated March 15, 2012, by and among the Company, the   Guarantors party thereto and Manufacturers and Traders Trust Company   (incorporated by reference from the Company’s current report on Form 8-K   (file no. 333-176538) filed on March 21, 2012).                               |

 

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| 10.4   |   | Patent   Security Agreement, dated March 15, 2012, by and among the Company, the   Guarantors party thereto and Manufacturers and Traders Trust Company   (incorporated by reference from the Company’s current report on Form 8-K   (file no. 333-176538) filed on March 21, 2012).          |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.5   |   | Trademark   Security Agreement, dated March 15, 2012, by and among the Company, the   Guarantors related thereto and Manufacturers and Traders Trust Company   (incorporated by reference from the Company’s current report on Form 8-K   (file no. 333-176538) filed on March 21, 2012).     |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.6   |   | Guaranty   and Suretyship Agreement, dated March 15, 2012, by and among the   Company, the Guarantors party thereto and Manufacturers and Traders Trust   Company (incorporated by reference from the Company’s current report on   Form 8-K (file no. 333-176538) filed on March 21, 2012).  |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.7   |   | Commercial   Credit Facility, dated July 21, 2011, between the Company and   Manufacturers and Traders Trust Company (incorporated by reference from the   Company’s registration statement on Form S-4 (file no. 333-176538) filed   on August 29, 2011).                                    |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.8   |   | $6,000,000   Berks County Industrial Development Authority variable rate demand/fixed rate   revenue bonds (Stabler Companies Inc. Project) series of 1998 (incorporated   by reference from the Company’s registration statement on Form S-4 (file   no. 333-176538) filed on August 29, 2011).   |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.9   |   | $4,500,000   Bradford County Industrial Development Authority variable rate demand/fixed   rate revenue bonds (State Aggregates Inc. Project) series of 2000   (incorporated by reference from the Company’s registration statement on   Form S-4 (file no. 333-176538) filed on August 29, 2011). |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.10  |   | $8,465,000   Union County Industrial Development Authority variable rate demand/fixed rate   revenue bonds (Stabler Companies Inc. Project) series of 2001 (incorporated   by reference from the Company’s registration statement on Form S-4 (file   no. 333-176538) filed on August 29, 2011).   |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.11  |   | Executive   Benefit Plan of the Company, amended and restated as of January 1, 2008   (incorporated by reference from the Company’s registration statement on   Form S-4 (file no. 333-176538) filed on August 29, 2011).                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.12  |   | Stock   Restriction and Management Agreement, dated March 1, 1990, among the   Company, Paul I. Detwiler, Jr. and Donald L. Detwiler (incorporated by   reference from the Company’s registration statement on Form S-4 (file   no. 333-176538) filed on August 29, 2011).               |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.13  |   | Form of   Transferee Stock Restriction Agreement (incorporated by reference from the   Company’s registration statement on Form S-4 (file no. 333-176538) filed   on August 29, 2011).                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.14  |   | Amended   and Restated Lease, dated February 28, 2003, effective February 15,   2001, by and between the Company and South Woodbury LP (incorporated by   reference from the Company’s registration statement on Form S-4 (file   no. 333-176538) filed on August 29, 2011).             |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.15  |   | Lease   Agreement, dated February 28, 2003, effective January 1, 2001, by   and between the Company and South Woodbury LP (incorporated by reference from   the Company’s registration statement on Form S-4 (file no. 333-176538)   filed on August 29, 2011).                          |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.16  |   | Industrial   Space Lease, dated May 1, 2006, by and between the Company and Adlee   Precast, Inc. (incorporated by reference from the Company’s registration   statement on Form S-4 (file no. 333-176538) filed on August 29,   2011).                                                  |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.17  |   | Letter   Agreement, dated May 1, 2006, by and between the Company and Adlee   Precast, Inc. (incorporated by reference from the Company’s registration   statement on Form S-4 (file no. 333-176538) filed on August 29,   2011).                                                        |

 

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| 10.18   |   | Letter   of Credit, dated December 27, 2007, between the Company and Team Capital   Bank (incorporated by reference from the Company’s registration statement on   Form S-4 (file no. 333-176538) filed on August 29, 2011).                                                                                                          |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.19   |   | Amendment   No. 1 to Stock Restriction and Management Agreement, dated   August 22, 2011, among the Company, Paul I. Detwiler, Jr. and   Donald L. Detwiler (incorporated by reference from the Company’s registration   statement on Form S-4 (file no. 333-176538) filed on August 29,   2011).                           |
|    |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.20   |   | Form of   Amendment No. 1 to Form of Transferee Stock Restriction Agreement   (incorporated by reference from the Company’s registration statement on   Form S-4 (file no. 333-176538) filed on August 29, 2011).                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.21   |   | $20,000,000   Secured Six-Month Term Note, dated August 29, 2011, among the Company   and certain of its subsidiaries as borrowers and Manufacturers and Traders   Trust Company as Lender (incorporated by reference from the Company’s   registration statement on Form S-4/A (file no. 333-176538) filed on   September 12, 2011). |
|    |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.22   |   | First   Amendment to Term Note, dated January 24, 2012, among the Company and   certain of its subsidiaries and Manufacturers and Traders Trust Company   (incorporated by reference from the Company’s current report on Form 8-K   (file no. 333-176538) filed on January 26, 2012).                                                |
|    |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.23   |   | Purchase   Agreement, dated March 1, 2012, by and among the Company, the Subsidiary   Guarantors named therein and Merrill Lynch, Pierce, Fenner & Smith   Incorporated (incorporated by reference from the Company’s current report on   Form 8-K (file no. 333-176538) filed on March 1, 2012).                            |
|    |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.24   |   | Amendment   No. 1 and Waiver to Credit Agreement dated September 7, 2012 by and   among the Company and Manufacturers and Traders Trust Company and the Lenders   defined therein (incorporated by reference from the Company’s current report   on Form 8-K (file no. 333-176538) filed on September 7, 2012).                  |
|    |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.25   |   | Amendment   No. 2 and Waiver to Credit Agreement dated December 7, 2012 by and   among the Company and Manufacturers and Traders Trust Company and the Lenders   defined therein (incorporated by reference from the Company’s current report   on Form 8-K (file no. 333-176538) filed on December 12, 2012).                   |
|    |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.26   |   | Employment   Agreement, dated March 22, 2013, by and among Albert L. Stone and the   Company (incorporated by reference from the Company’s current report on   Form 8-K (file no. 333-176538) filed on March 22, 2013.                                                                                                                |
|    |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.27   |   | Amendment   No. 3 to Credit Agreement, dated as of May 29, 2013, by and among   the Company and Manufacturers and Traders Trust Company and the Lenders   defined therein (incorporated by reference from the Company’s current report   on Form 8-K (file no. 333-176538) filed on May 30, 2013).                               |
|    |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.28   |   | Agreement   and General Release, dated July 17, 2013, by and between the Company and   James W. Van Buren (incorporated by reference from the Company’s current   report on Form 8-K (file no. 333-176538) filed on July 19, 2013).                                                                                                   |
|    |   |                                                                                                                                                                                                                                                                                                                                                      |
| 21.2*   |   | Subsidiaries   of the Company.                                                                                                                                                                                                                                                                                                                            |
|    |   |                                                                                                                                                                                                                                                                                                                                                      |
| 31.1**  |   | Certification   of the Chief Executive Officer pursuant to Rule 13a-14(a) or   15d-14(a).                                                                                                                                                                                                                                                       |
|    |   |                                                                                                                                                                                                                                                                                                                                                      |
| 31.2**  |   | Certification   of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a).                                                                                                                                                                                                                                                         |
|    |   |                                                                                                                                                                                                                                                                                                                                                      |
| 32.1*** |   | Certification   of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                                                                   |
|    |   |                                                                                                                                                                                                                                                                                                                                                      |
| 32.2*** |   | Certification   of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                                                                   |
|    |   |                                                                                                                                                                                                                                                                                                                                                      |
| 95*     |   | Mine   Safety Disclosure.                                                                                                                                                                                                                                                                                                                                 |

 
| 101.INS XBRL**** |   | Instance   document                        |
|-----------------------|--------|--------------------------------------------|
|                  |   |                                       |
| 101.SCH XBRL**** |   | Taxonomy   Extension Schema                |
|                  |   |                                       |
| 101.CAL XBRL**** |   | Taxonomy   Extension Calculation Linkbase  |
|                  |   |                                       |
| 101.DEF XBRL**** |   | Taxonomy   Extension Definition Linkbase   |
|                  |   |                                       |
| 101.LAB XBRL**** |   | Taxonomy   Extension Label Linkbase        |
|                  |   |                                       |
| 101.PRE XBRL**** |   | Taxonomy   Extension Presentation Linkbase |

 

----

*                                         Previously filed.

 

**                                  Filed herewith.

 

***                           Furnished herewith.

 

****                    Previously furnished.

 

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
| ** **               | **NEW ENTERPRISE STONE & LIME CO., INC.** |
|--------------------------|---------------------------------------------------------|
|                     |                                                    |
| Date: September 20, 2013 | By:                                                     |
|                     |                                                    | /s/ Albert L. Stone |
|                     |                                                    | Albert L. Stone |
|                     | * *                                                | *Senior Vice President Chief Financial Officer* |

 

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**EXHIBIT INDEX**

 

The following exhibits are being filed as part of this Annual Report on Form 10-K:

 
| 3.1    |   | Amended   and Restated Certificate of Incorporation of New Enterprise Stone &   Lime Co., Inc. (incorporated by reference from the Company’s   registration statement on Form S-4 (file no. 333-176538) filed on   August 29, 2011).                                                               |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 3.2    |   | Amended   and Restated Bylaws of New Enterprise Stone & Lime Co., Inc.   (incorporated by reference from the Company’s registration statement on   Form S-4 (file no. 333-176538) filed on August 29, 2011).                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 4.1    |   | Indenture,   dated August 18, 2010, by and among the Company and Wells Fargo Bank,   National Association (incorporated by reference from the Company’s   registration statement on Form S-4 (file no. 333-176538) filed on   August 29, 2011).                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 4.2    |   | Certificate   for the Company’s 11% Senior Notes due 2018 (incorporated by reference from   the Company’s registration statement on Form S-4 (file no. 333-176538)   filed on August 29, 2011).                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 4.3    |   | Certificate   for the Company’s Notation of Note Guarantee (incorporated by reference from   the Company’s registration statement on Form S-4 (file no. 333-176538)   filed on August 29, 2011).                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 4.4    |   | Form of   the Company’s Exchange 11% Senior Notes due 2018 (incorporated by reference   from the Company’s registration statement on Form S-4/A (file no.   333-176538) filed on September 12, 2011).                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 4.5    |   | Form of   Notation of Exchange Note Guarantee (incorporated by reference from the   Company’s registration statement on Form S-4 (file no. 333-176538) filed   on August 29, 2011).                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 4.6    |   | Registration   Rights Agreement, dated August 18, 2010, by and among the Company, the   Guarantors party thereto and Banc of America Securities LLC (incorporated by   reference from the Company’s registration statement on Form S-4 (file   no. 333-176538) filed on August 29, 2011).                   |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 4.7    |   | Indenture,   dated March 15, 2012, by and between the Company and Wells Fargo Bank,   National Association (incorporated by reference from the Company’s current   report on Form 8-K (file no. 333-176538) filed on March 21, 2012).                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 4.8    |   | Global   Notes for the Company’s 13% Senior Secured Notes due 2018 (incorporated by   reference from the Company’s current report on Form 8-K (file no.   333-176538) filed on March 21, 2012).                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 4.9    |   | Registration   Rights Agreement, dated March 15, 2012, by and among the Company, the   Guarantors party thereto and Merrill Lynch, Pierce Fenner & Smith Incorporated   (incorporated by reference from the Company’s current report on Form 8-K   (file no. 333-176538) filed on March 21, 2012). |

 

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| 4.10   |   | Security   Agreement, dated March 15, 2012, by and among the Company, the   Guarantors party thereto and Wells Fargo Bank, National Association   (incorporated by reference from the Company’s current report on Form 8-K   (file no. 333-176538) filed on March 21, 2012).                  |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                              |
| 4.11   |   | Patent   Security Agreement, dated March 15, 2012, by and among the Company, the   Guarantors party thereto and Wells Fargo Bank, National Association   (incorporated by reference from the Company’s current report on Form 8-K   (file no. 333-176538) filed on March 21, 2012).           |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 4.12   |   | Trademark   Security Agreement, dated March 15, 2012, by and among the Company, the   Guarantors party thereto and Wells Fargo Bank, National Association   (incorporated by reference from the Company’s current report on Form 8-K   (file no. 333-176538) filed on March 21, 2012).        |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 4.13   |   | Mortgage   Modification Agreement, dated March 15, 2012, by and among the Company,   the Guarantors party thereto and Wells Fargo Bank, National Association   (incorporated by reference from the Company’s current report on Form 8-K   (file no. 333-176538) filed on March 21, 2012).     |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 4.14   |   | Intercreditor   Agreement, dated March 15, 2012, by and among the Company, the   Guarantors party thereto and Wells Fargo Bank, National Association   (incorporated by reference from the Company’s current report on Form 8-K   (file no. 333-176538) filed on March 21, 2012).             |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.1   |   | Purchase   Agreement, dated August 18, 2010, by and among the Company, the Initial   Purchasers and Banc of America Securities LLC (incorporated by reference from   the Company’s registration statement on Form S-4 (file no. 333-176538)   filed on August 29, 2011) .                     |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.2   |   | Credit   Agreement, dated March15, 2012, by and among Manufacturers and Traders Trust   Company, the Lenders defined therein, and the Company (incorporated by   reference from the Company’s current report on Form 8-K (file no.   333-176538) filed on March 21, 2012).                         |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.3   |   | Security   Agreement, dated March 15, 2012, by and among the Company, the   Guarantors party thereto and Manufacturers and Traders Trust Company   (incorporated by reference from the Company’s current report on Form 8-K   (file no. 333-176538) filed on March 21, 2012).                 |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.4   |   | Patent   Security Agreement, dated March 15, 2012, by and among the Company, the   Guarantors party thereto and Manufacturers and Traders Trust Company   (incorporated by reference from the Company’s current report on Form 8-K   (file no. 333-176538) filed on March 21, 2012).          |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.5   |   | Trademark   Security Agreement, dated March 15, 2012, by and among the Company, the   Guarantors related thereto and Manufacturers and Traders Trust Company   (incorporated by reference from the Company’s current report on Form 8-K   (file no. 333-176538) filed on March 21, 2012).     |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.6   |   | Guaranty   and Suretyship Agreement, dated March 15, 2012, by and among the   Company, the Guarantors party thereto and Manufacturers and Traders Trust   Company (incorporated by reference from the Company’s current report on   Form 8-K (file no. 333-176538) filed on March 21, 2012).  |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.7   |   | Commercial   Credit Facility, dated July 21, 2011, between the Company and   Manufacturers and Traders Trust Company (incorporated by reference from the   Company’s registration statement on Form S-4 (file no. 333-176538) filed   on August 29, 2011).                                    |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.8   |   | $6,000,000   Berks County Industrial Development Authority variable rate demand/fixed rate   revenue bonds (Stabler Companies Inc. Project) series of 1998 (incorporated   by reference from the Company’s registration statement on Form S-4 (file   no. 333-176538) filed on August 29, 2011).   |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.9   |   | $4,500,000   Bradford County Industrial Development Authority variable rate demand/fixed   rate revenue bonds (State Aggregates Inc. Project) series of 2000   (incorporated by reference from the Company’s registration statement on   Form S-4 (file no. 333-176538) filed on August 29, 2011). |

 

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| 10.10  |   | $8,465,000   Union County Industrial Development Authority variable rate demand/fixed rate   revenue bonds (Stabler Companies Inc. Project) series of 2001 (incorporated   by reference from the Company’s registration statement on Form S-4 (file   no. 333-176538) filed on August 29, 2011).                                           |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.11  |   | Executive   Benefit Plan of the Company, amended and restated as of January 1, 2008   (incorporated by reference from the Company’s registration statement on   Form S-4 (file no. 333-176538) filed on August 29, 2011).                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.12  |   | Stock   Restriction and Management Agreement, dated March 1, 1990, among the   Company, Paul I. Detwiler, Jr. and Donald L. Detwiler (incorporated by   reference from the Company’s registration statement on Form S-4 (file   no. 333-176538) filed on August 29, 2011).                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.13  |   | Form of   Transferee Stock Restriction Agreement (incorporated by reference from the   Company’s registration statement on Form S-4 (file no. 333-176538) filed   on August 29, 2011).                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.14  |   | Amended   and Restated Lease, dated February 28, 2003, effective February 15,   2001, by and between the Company and South Woodbury LP (incorporated by   reference from the Company’s registration statement on Form S-4 (file   no. 333-176538) filed on August 29, 2011).                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.15  |   | Lease   Agreement, dated February 28, 2003, effective January 1, 2001, by   and between the Company and South Woodbury LP (incorporated by reference from   the Company’s registration statement on Form S-4 (file no. 333-176538)   filed on August 29, 2011).                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.16  |   | Industrial   Space Lease, dated May 1, 2006, by and between the Company and Adlee   Precast, Inc. (incorporated by reference from the Company’s registration   statement on Form S-4 (file no. 333-176538) filed on August 29,   2011).                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.17  |   | Letter   Agreement, dated May 1, 2006, by and between the Company and Adlee   Precast, Inc. (incorporated by reference from the Company’s registration   statement on Form S-4 (file no. 333-176538) filed on August 29,   2011).                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.18  |   | Letter   of Credit, dated December 27, 2007, between the Company and Team Capital   Bank (incorporated by reference from the Company’s registration statement on   Form S-4 (file no. 333-176538) filed on August 29, 2011).                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.19  |   | Amendment   No. 1 to Stock Restriction and Management Agreement, dated   August 22, 2011, among the Company, Paul I. Detwiler, Jr. and   Donald L. Detwiler (incorporated by reference from the Company’s registration   statement on Form S-4 (file no. 333-176538) filed on August 29,   2011).                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.20  |   | Form of   Amendment No. 1 to Form of Transferee Stock Restriction Agreement   (incorporated by reference from the Company’s registration statement on   Form S-4 (file no. 333-176538) filed on August 29, 2011).                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.21  |   | $20,000,000   Secured Six-Month Term Note, dated August 29, 2011, among the Company   and certain of its subsidiaries as borrowers and Manufacturers and Traders   Trust Company as Lender (incorporated by reference from the Company’s   registration statement on Form S-4/A (file no. 333-176538) filed on   September 12, 2011). |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.22  |   | First   Amendment to Term Note, dated January 24, 2012, among the Company and   certain of its subsidiaries and Manufacturers and Traders Trust Company   (incorporated by reference from the Company’s current report on Form 8-K   (file no. 333-176538) filed on January 26, 2012).                                                |

 

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| 10.23   |   | Purchase   Agreement, dated March 1, 2012, by and among the Company, the Subsidiary   Guarantors named therein and Merrill Lynch, Pierce, Fenner & Smith   Incorporated (incorporated by reference from the Company’s current report on   Form 8-K (file no. 333-176538) filed on March 1, 2012).           |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.24   |   | Amendment   No. 1 and Waiver to Credit Agreement dated September 7, 2012 by and   among the Company and Manufacturers and Traders Trust Company and the Lenders   defined therein (incorporated by reference from the Company’s current report   on Form 8-K (file no. 333-176538) filed on September 7, 2012). |
|    |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.25   |   | Amendment   No. 2 and Waiver to Credit Agreement dated December 7, 2012 by and   among the Company and Manufacturers and Traders Trust Company and the Lenders   defined therein (incorporated by reference from the Company’s current report   on Form 8-K (file no. 333-176538) filed on December 12, 2012).  |
|    |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.26   |   | Employment   Agreement, dated March 22, 2013, by and among Albert L. Stone and the   Company (incorporated by reference from the Company’s current report on   Form 8-K (file no. 333-176538) filed on March 22, 2013.                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.27   |   | Amendment   No. 3 to Credit Agreement, dated as of May 29, 2013, by and among   the Company and Manufacturers and Traders Trust Company and the Lenders   defined therein (incorporated by reference from the Company’s current report   on Form 8-K (file no. 333-176538) filed on May 30, 2013).              |
|    |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.28   |   | Agreement   and General Release, dated July 17, 2013, by and between the Company and   James W. Van Buren (incorporated by reference from the Company’s current   report on Form 8-K (file no. 333-176538) filed on July 19, 2013).                                                                                  |
|    |   |                                                                                                                                                                                                                                                                                                                                     |
| 21.2*   |   | Subsidiaries   of the Company.                                                                                                                                                                                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                                                     |
| 31.1**  |   | Certification   of the Chief Executive Officer pursuant to Rule 13a-14(a) or   15d-14(a).                                                                                                                                                                                                                                      |
|    |   |                                                                                                                                                                                                                                                                                                                                     |
| 31.2**  |   | Certification   of the Chief Financial Officer pursuant to Rule 13a-14(a) or   15d-14(a).                                                                                                                                                                                                                                      |
|    |   |                                                                                                                                                                                                                                                                                                                                     |
| 32.1*** |   | Certification   of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                                                  |
|    |   |                                                                                                                                                                                                                                                                                                                                     |
| 32.2*** |   | Certification   of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                                                  |
|    |   |                                                                                                                                                                                                                                                                                                                                     |
| 95*     |   | Mine   Safety Disclosure.                                                                                                                                                                                                                                                                                                                |

 
| 101.INS XBRL**** |   | Instance   document                        |
|-----------------------|--------|--------------------------------------------|
|                  |   |                                       |
| 101.SCH XBRL**** |   | Taxonomy   Extension Schema                |
|                  |   |                                       |
| 101.CAL XBRL**** |   | Taxonomy   Extension Calculation Linkbase  |
|                  |   |                                       |
| 101.DEF XBRL**** |   | Taxonomy   Extension Definition Linkbase   |
|                  |   |                                       |
| 101.LAB XBRL**** |   | Taxonomy   Extension Label Linkbase        |
|                  |   |                                       |
| 101.PRE XBRL**** |   | Taxonomy   Extension Presentation Linkbase |

 

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*                                         Previously filed.

 

**                                  Filed herewith.

 

***                           Furnished herewith.

 

****                    Previously furnished.

 

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