Operator: Good day, ladies and gentlemen, thank you for standing by. Welcome to the TXI Third Quarter Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions.
I would now like to turn the conference over to Mr. Les Vines. Please go ahead, sir.
T. Lesley Vines - VP, Corporate Controller and Treasurer: Thank you, Bruno. Good morning, everybody. Thank you again for joining us for our third quarter conference call and webcast. We certainly appreciate your time and interest. On the call with me today are President and CEO, Mel Brekhus; CFO, Ken Allen; and Chief Operating Officer, Jamie Rogers.
We will follow the same format as in previous calls, with management providing comments for the quarter and then follow with your Q&A, and consistent with recent practices, we would ask that in order to give everybody an opportunity to ask your questions, if you would limit your initial round to two three that would be great.
Before turning things over to Mel, I'd like to remind you that we are hosting an Investor Day on April 18, in Austin. I think today is the RSVP date, in case you haven't already, let us know of your intent to attend. And if you have any questions about the event, you can contact Linda English. Her number is 9726476732.
Also, I need to remind you that certain statements contained in this conference call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date hereof and we assume no obligation to publicly update such statements. Such statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.
Potential risks and uncertainties include, but are not limited to, the impact of competitive pressures and changing economic and financial conditions on our business, the cyclical and seasonal nature of our business, the level of construction activity in our markets, abnormal periods of inclement weather, unexpected periods of equipment downtime; unexpected operational difficulties; changes in the cost of raw materials, fuel and energy; changes in interest rates, the timing and amount of federal, state and local funding for infrastructure; delays in announced capacity expansions; ongoing volatility and uncertainty in the capital or credit markets; the impact of environmental laws; regulations and claims; and changes in governmental and public policy; and the risks and uncertainties described in our reports on Forms 10-K, 10-Q, and 8-K.
With that, I will turn it over to you, Mel.
Mel G. Brekhus - President and CEO: Okay. Thanks Les, and good morning, everyone. There are three things that I want to make sure you take away from the call today. They are; number one, all of our markets are improving. Number two, all of our markets still have a lot of upside before getting back to their historical averages in peak. Number three, we're positioned better than ever to take advantage of the potential in all of these markets.
I have told you before on a number of occasions that jobs are the key. Healthy employment environment spurs population growth and new home construct creates the need for supporting infrastructure and commercial construction and helps to support means to fund the public portions of these projects.
When you look at the nation's top job growth markets in the United States three of the top nine metropolitan markets are in our Texas (wheel) house, Houston, Dallas-Fort Worth and Austin we're number one, three and nine in 2012.
But it's not just our Texas markets that are creating jobs, Los Angeles, San Francisco, San Jose, and San Diego were numbers two, five, 13 and 15, respectively. Large markets with strong job growth drive a lot of construction activity and we're in the best markets with this – in this regard.
Nationally housing starts jumped to a four-year high late in 2012 in both Texas and California we're up approximately 30% compared to 2011. The average forecast that national housing starts for 2013 is 1 million starts a far cry from the 1.5 million annual average starts going all the way back to 1959. This is why I believe there is a lot more upside to come.
Going back to 2008 we have significantly increased our ability to benefit from the improved levels of construction in our markets. Recall that we built our cement plant in California and brought it online in 2008 as the nation was heading into a severe recession.
We added 1 million tons of capacity and dramatically improved our cost profile in that market, though, we have yet to fully realize the benefits. In Texas we have strategically realigned our assets to create a stronger vertically integrated position in our markets. We acquired a leading ready-mix profile in Austin, Texas in the surrounding area that now works in tandem with our cement and aggregate operations in that market.
Last week we closed on a transaction where we acquired 42 ready-mix plants throughout the attractive East Texas markets in exchange for our expanded shale and clay operations. These operations will be served by both of our cement plants in Texas. Finally, later this spring we will complete the commissioning of our new cement kiln in Central Texas and add 1.4 million tons of low cost capacity into this strong and growing market.
Before turning it over to Jamie, I will reiterate that our markets are better, we expect a lot more improvement to come and we are well positioned to benefit from that improvement. We are not resting and we are singularly focused on doing all we can to realize our potential as quickly as possible. Jamie?
James B. (Jamie) Rogers - VP and COO: Thank you, Mel. As you mentioned, Texas has been leading the way in job creation as all major markets in the state reached and exceeded prerecession employment levels during 2012. The job growth in Texas is creating a vastly improved housing market. Values are up, foreclosures are down, permits are up and the supply of inventory is tight. Overall the state is close to a four month supply of inventory available for sale, with all of the major markets at or below four months. In fact, a number of attractive sub-markets are at a two month supply. This explains why four out of the top eight markets in 2012 ranked by single family starts are in Texas with Houston and Dallas-Fort Worth being one and two.
In Dallas-Fort Worth, single family housing permits in 2012 were approximately 13,000, well below the 2004 peak of 32,000 permits. Leasing rates for both office and industrial space continue to improve in the DFW metroplex leading to new projects in both sectors. Industrial vacancies are below 8% and while overall vacancy rates are higher than one would like, large blocks of contiguous space in desirable markets are scarce.
The large road projects in DFW we previously discussed continue to proceed and the need for new projects continues to grow. The North Central Texas Council of Governments 2035 Mobility project forecasts the need for strategic infrastructure investment to be just under $49 billion. Single-family housing permits issued in Houston during 2012 totaled around 25,000, about 50% of the 2005 peak.
The Houston area markets have been ahead of the North Texas market and thus the office and industrial construction activity has been stronger. Currently, there is 12 million square feet of office space under construction in this market with an additional 6 million square feet planned. As you would expect, there is significant pressure on the Houston area infrastructure and there are a large number of large projects in the works to help alleviate this pressure.
Boston has a similar story. Single family permits issued in 2012 were 8,000 compared to almost 18,000 at the peak. While I don't have all of the square footage details, there are 44 office and industrial projects under construction or planned in the lower part of Downtown Austin alone. California's single family permits posted a modest uptick in 2012, but remained less than 30,000. This is a level that is approximately 20% of the prior peak and approximately 30% of the annual average of the past 32 years.
Again, this illustrates the tremendous upside potential of our markets that Mel alluded to. I'm very excited about how we are positioned in our markets to take advantage of the recovery. Increasing shipments and corresponding production levels allow us to spread our fixed costs over more units and make the incremental volumes more profitable. Our strategic redeployment of capital in Texas will also increase our ability to benefit from this recovery.
In addition to improving our vertical integration footprint, our recently announced transaction involves our disposition of an attractive but stable earning stream with limited recovery upside and the acquisition of operations that do have a significant amount of recovery upside potential. While this was a good strategic transaction for us, it was not easy to part ways with many long-term colleagues and friends in the expanded shale and clay operations. They built a great business and I'm very appreciative of their many contributions to TXI.
I'm also excited to welcome 350 new teammates of TXI. They've also built a fantastic business throughout East Texas and Southern Arkansas and will be a great addition going forward. As Mel mentioned, we are in the final stages of commissioning of our new 1.4 million ton kiln in Central Texas. The issues we've encountered have been similar to those we've encountered in other commissioning efforts. Our team has worked hard on this project and I am very proud of their efforts and results. Given the outlook for this market the timing for the additional capacity appears to be very good. Recall that we intend to take down the current kiln for a year or so to upgrade some of its environment controls unless the initial additional capacity is only 500,000 tons short term.
Overall, I feel very good about the hard work we've done to position TXI for this recovery. It is gratifying to begin seeing some of that reflected in our results and I am even more excited about the rise going forward.
And with that I will hand it off to Ken.
Kenneth R. Allen - VP, Finance, Treasurer and CFO: Thanks, Jamie and good morning. I will first highlight several items from the quarter and then move on into the several comments from the fourth quarter. Consolidated sales of $141 million were up 16% from last year's third quarter. On an apples-to-apples basis, after removing roughly $4 million in revenue from our package operations that we sold last spring, the $141 million in this year's sales was actually up about 20%. Our Texas cement operation shipped 645,000 tons in the quarter and this was up 27% from year ago. California cement shipments of 288,000 tons were up 22%. Aggregate shipments were up 28% and ready-mix shipments increased 7%.
Now, while ready-mix shipment related to the (NESHAP) growth rates for the energy product lines realized prices in ready-mix were up 12%. Cement prices in Texas increased 2% while California realized pricing decline 3% due to product and customer mix. As you look at individual markets in the California region, you really don't see any price declines. This is a mix issue. Aggregate pricing increased 2% as well. All said, we are continuing to see positive trends in shipments and prices leading to double digit increases in consolidated revenues. This $20 million plus increase in sales also resulted in $14 million of increase in gross profit.
Now when you adjust for the outage costs last year in cement and the impact of no longer having the packaged products business, incremental margins on increased revenues were about 50%, and this is as it should be given the fixed cost nature of our business and the work we've done to reduce our cost structure.
SG&A expense include variable stock-based compensation charges of $1.4 million in the quarter and $1.7 million in the same quarter last year. This year's quarter also included a $1.2 million insurance charge related to a prior event in ready-mix. Now when you take these three items out, SG&A expense as a percent of sales declined from 12.8% last year to 10.3% this year. On a total dollar basis, SG&A expense after the three adjustments, declined by $1.1 million.
One small note, while we are discussing SG&A expense, this third quarter will be the last quarter that, includes any material variable stock-based compensation expense. We made some adjustments to contracts in the middle of the third quarter that removed this source of variability and attraction.
Our efforts over the last year and a half to improve the Company's long term cost structure put us in a position of moving forward into fiscal 2014 with the expectation that gross margins will be at least 15% and SG&A increase will be no more than 8%. Given trends and conditions that are currently in place we'd also expect to do better than those numbers. TXI's cash balance at the end of February was $32 million.
The asset swap in March adds into our cash and recall that we have the ability to borrow about $100 million under our credit line without the constraint of maintenance covenants. So at the end of February total liquidity for the Company was in excess of $130 million and growing. As we look forward now, recall that fourth quarter shipments are usually the strongest of the fiscal year and we see no reason to question that pattern given the normal weather. We would also expect to see overall pricing continue as positive trend.
In cement, (twinkle) production should be up over last year's production tracked shipments in the fourth quarter. Last year's quarter really didn't have any unusual cement plant maintenance expense to note and we don't think we will much in the current quarter either. We've said in the past that we expect the new kiln Central Texas will be fully commissioned in this quarter and we continue to hold to that schedule once the plant is declared fully commissioned deprecation associated with the project will begin flowing through the income statement at a rate of approximately $18 million to $19 million per year. We will also stop capitalizing interest once commissioning is ended, and when that happens, interest expense will increase to an annual run rate of around $69 million.
The fourth quarter will include about two months of results for the ready-mix operations we acquired late in March in East Texas. On the other hand the quarter will not include too much of expanded shale and clay results which are already reflected as discontinued operations. The difference in profit between the two product results will not be large enough to move the needle for just the two months of the quarter.
With regard to capital spending, non-expansion capital for the nine months today had equaled $20 million. We still expect capital investment for this category will be in the neighborhood of $25 million to $30 million for the entire fiscal year.
So, at this point, the major capital investments may upgrade and expand all three of TXI cement facilities are now for all practical purposes behind us. We've also reallocated capital to strengthen and expand our vertical integration footprint in Texas, the largest in our opinion the best construction region in the nation.
As a result TXI's earnings capacity is well above that of the previous peak. We believe that annual earning's capacity in a normal market for the company is approximately $400 million of EBITDA. This is the number we communicated prior to the downturn and it continues to be our goal and expectation.
After all the excellent work that our employees have accomplished to get us to this point, rest assured that as Mel and Jamie have already related we'll put as much energy into obtaining this value for shareholders in the future. Les with those comments we'll turn things over to you.
T. Lesley Vines - VP, Corporate Controller and Treasurer: I think we are ready for Q&A.
Operator: Ted Grace, Susquehanna.
Ted Grace - Susquehanna: Maybe starting with that last comment that you made on $400 million of EBITDA could you give us some of the key building blocks or assumptions that underlie that number?
Kenneth R. Allen - VP, Finance, Treasurer and CFO: I'd be happy to, you know prior to the downturn in construction the average cement market in the United States was in a sold out position and required imported cement. We think that’s going to be the average condition of the cement market going forward once the recovery is fully realized in our markets and our experience has been that if you have good cement assets in a sold out cement market. You generate 30% or 35% EBIT margins. Given those margins and given the 7 million to 7.5 million tons of cement capacity that will eventually be able to shift and the associated aggregate ready mix results and margins that would go along with that. It's all pretty consistent with around $400 million of EBITDA.
Ted Grace - Susquehanna: I realize this is probably the toughest question you are ever going to answer but, realistically when would you expect to get to the type of market conditions that might produce that kind of demand, for the industry and for TXI?
Mel G. Brekhus - President and CEO: Obviously we would expect that to occur quicker in the Texas market. As a matter of fact as you look at things affecting this market, we are probably pretty close to being there over the next year or so we think of total supply into the market today. The California region market balances a little different than it is in Texas with demand being still quite a ways below capacity and that's why it will take a little longer for that region to catch up. But I will tell you in the meantime with our concentration of assets being in the Texas region and the opportunities to improve EBITDA in that region, in the near term there is a lot of value being created just in Texas. Then value will be created in California as things begin to pick up but it will take a little longer in California.
Ted Grace - Susquehanna: So just maybe on the pricing front if we go back to kind of the prior high where pricing on some of that in any way was in the mid-90s and now we are looking at something that's in the 70s. How would you encourage us to think about the path between here in getting back to – the time table of the path to getting back to something in the high-80s to low-90s?
Mel G. Brekhus - President and CEO: Some of that will depend on input price movements as well and that's why we talk about margins rather than prices. But given what we have seen in this past downturn and really in the past 20 years in the Texas, in the U.S. in that market in terms of improved market structure where we've seen imports being fairly rationale, where we've seen pricing in a terrible downturn drop and drop significantly, but not to where you think it would be in a high fixed cost, variable cost industry. There is no reason why we shouldn't see pricing exceed the previous peak. Right now though that $400 million number is really based on EBIT margins that we've seen in the past with the (equipment).
Ted Grace - Susquehanna: The last thing I wanted to ask because I know you want to get on to others too. If we just think about TXI's competitive positioning following the Hunter Commissioning, in terms of where you think you will be on the cost curve vis-a-vis your competitors. Could you just help us understand do you think you are going to be in line with the market, better positioned from call it unit economics basis or something else.
James B. (Jamie) Rogers - VP and COO: I would expect to be on the better end or upper end from a competitive standpoint, we've got great footprint. We have the newest fleet in the industry with our Hunter plant coming on line and the (indiscernible) being among the newer plants in Texas, as well as California. So, we've had – we've built three new cement plants in roughly 10 years, so I feel extremely good about our position.
Operator: Kathryn Thompson, Thompson Research Group.
Kathryn Thompson - Thompson Research Group: First question is on the Hunter plant commissioning. Just a little walk around how it's running, as you're getting to the process of fully commissioning and you are also will be shutting down about 900,000 from plant as Hunter becomes fully commissioned. Maybe discuss just more the mechanics of the timing will there be additional costs as you ramp up and ramp down capacity and if there is anything that we should take into account in this quarter and the next quarter when taken into account of the Hunter dynamics.
James B. (Jamie) Rogers - VP and COO: This is Jamie, I might (indiscernible) this with Ken a little bit and I am too propitious, but I am going to say this anyway. Our commissioning process so far has gone as well as we could have possibly expected. As we mentioned earlier in the comments, we expect to formally commission Hunter 2 this quarter. We expect the cost as we get into more normal run rates or commission run rates to be very good with Hunter 2 of course. And our expectation you didn't ask this, but I will answer it anyway our expectation is that we would after making the appropriate modification for our Hunter 1 plant the 900,000 that you mentioned to bring that back online maybe a little sooner than we thought but I'd say within 12 to 14 months plus or minus. Kathryn, the only other cost and I am sure you pick this up that it would be depreciation and the interest that would start to flow through as well once we declare commission.
Kathryn Thompson - Thompson Research Group: Moving to pricing. We are hearing very positive commentary out of Texas with the cement price increase. In California, it is our understanding that you've taken a little bit more of a two tier approach. So, overall number is about in line with the market, but the timing is a little bit different spreading out the increases through the spring. Could you maybe expand more on the thoughts behind the strategy and also talk a little bit about market acceptance of cement price increases in California?
James B. (Jamie) Rogers - VP and COO: It's Jamie again. We saw I mean to your two tier comments a modest $2 price improvement or price increase in January. The next tier of $3 we feel very confident about that occurring April 1 and we're optimistic as well of the potential increases in the spring in the summer months.
Kathryn Thompson - Thompson Research Group: What was the general magnitude of that being would it be in California and Texas?
James B. (Jamie) Rogers - VP and COO: I'll start with the California, yeah let me go back to Texas in Texas depending on what local market you are in it will range but I would say both are going to occur in April, as you get both through the North Texas in the $3 price increase range for cement in Central Texas and Houston closer to a $5 range. I think that covers your question.
Operator: Jack Kasprzak, BB&T Capital Markets.
Jack Kasprzak - BB&T Capital Markets: How much of your Hunter cement capacity before you bring on the old kiln so in 12 – not 12 to 14 months from now but the new kiln how much of that do you think you will use in your own ready-mix operations now?
James B. (Jamie) Rogers - VP and COO: Jack, we are bringing on these new assets in East and Southeast Texas and Southern Arkansas, and we just closed that transaction. We expect to – can I add the further answer to that question until we get in the next teleconference. If we get a little further down the road and I can you a little better answer. But I will say that it's from an additional incremental opportunity, with those assets alone we would expect 100,000 plus extra tons.
Jack Kasprzak - BB&T Capital Markets: So, what’s happening in Texas in terms of demand and the positive dynamics you guys have laid out. Are you expecting that the new 100 capacity will basically be sold out once the commissioning phase is finished?
James B. (Jamie) Rogers - VP and COO: Yes.
Jack Kasprzak - BB&T Capital Markets: You talked about price increases in California, but can you remind us or refresh our memory where you think capacity utilization is in California. Is it still around 50% or shade below?
Kenneth R. Allen - VP, Finance, Treasurer and CFO: This is Ken, you are talking about our cement plants.
Jack Kasprzak - BB&T Capital Markets: Sorry, no, the industry.
Kenneth R. Allen - VP, Finance, Treasurer and CFO: The industry.
Jack Kasprzak - BB&T Capital Markets: Yes.
Kenneth R. Allen - VP, Finance, Treasurer and CFO: The industry, roughly were around 60% plus. The whole industry is probably going to be around the same area.
Operator: Garik Shmois, Longbow Research.
Garik Shmois - Longbow Research: First question is on Texas' net volume for you. You've been taking share for the last two quarters based on top of the available data and your results. Just wondering, is this a reflection of either your geographic positioning or exceeding the market right now in anticipation of Hunter expansion or are these maybe some large projects that you're servicing at this point in time that may end up rolling off sometime down the road and then you're sure it will come more in line with the markets just wondering if you can provide some color on your outperformance over the last couple of quarters?
James B. (Jamie) Rogers - VP and COO: Garik, this is Jamie. In terms of our backlogs and looking forward, I mean we feel very bullish about volumes in the market going forward. I think we're in a very good position to supply that market with the additional capacity we're bringing on, we may be in a relatively better position than our competitors.
Garik Shmois - Longbow Research: I guess just turning to concrete consumer products division. You got good pricing in the division right now volumes are accelerating. Just wondering what is it going to take for the business to be profitable moving forward. You have taken lots of new assets, it doesn't sound like, there is going to be much of lease in the near-term incremental profit shift, but if you could just help us some of the dynamics of the consumer products division, how you're thinking about getting the profitability there and maybe if you could provide the timeline, is fiscal '14 profitability a possibility there?
Kenneth R. Allen - VP, Finance, Treasurer and CFO: Sooner rather than later is our expectation. One thing I am excited about is the market dynamics and what we've experienced so far in the first couple three months of 2013. We're seeing demand and volumes not only higher than we were a year ago, but also a little bit higher than maybe our ability in some select markets that supply to market. That's a nice challenge for us to have and one that we haven't had in a while. It bodes well for pricing and it bodes well for our ability to increase our margins to those levels closer to profitability or to profitability you mentioned.
Garik Shmois - Longbow Research: Just wrapping up this round of questions, do you think that volume is a more significant driver for profitability in the business or is it pricing right now?
Kenneth R. Allen - VP, Finance, Treasurer and CFO: I think both. We are certainly focused on the pricing front.
Operator: Todd Vencil, Sterne, Agee
Todd Vencil - Sterne, Agee & Leech: You gave the capacity utilization in California. Can you tell me what do you think North Texas at this point?
Kenneth R. Allen - VP, Finance, Treasurer and CFO: Our North Texas plant is going to be running pretty close to capacity, 85%, 90%.
Todd Vencil - Sterne, Agee & Leech: And I assume 100% is effectively sold out at this point?
Kenneth R. Allen - VP, Finance, Treasurer and CFO: You heard Jamie say that as we've added some capacity effectively we got to get it running at full capacity to, but I think if I were modeling the Company I think that's generally where I'd be.
Todd Vencil - Sterne, Agee & Leech: In Texas, I mean, I think the pricing – you talked about the timing of the price increases and I appreciate that. It hadn't come true as much as I think we were looking for in the quarter. Is that just a question of the timing of the price increases, I mean obviously you can't comment on what my expectations were, but is there little bit going on there with timing of the price increase or perhaps are you guys maybe pushing your markets out a little bit more than you were? Has there been any change in sort of haul distance or anything like that that would affect the price in Texas?
James B. (Jamie) Rogers - VP and COO: I'd say it's the influence of mix and backlog as Ken already alluded, and I'm just looking forward to the April price increases and I feel very good, as good as I've ever felt about these being very successful.
Todd Vencil - Sterne, Agee & Leech: On the mix side, what was that, was it product mix or was it customer or how do we break that down?
James B. (Jamie) Rogers - VP and COO: Are you talking for specifically which market and product are you talking about here?
Todd Vencil - Sterne, Agee & Leech: I meant cement in Texas for this one?
James B. (Jamie) Rogers - VP and COO: You know you're seeing positive price movement in our markets and it's actually not as driven by product or customer mix. In California, that's where you're seeing the customer and product mix impact.
Todd Vencil - Sterne, Agee & Leech: I mean can you – on that and that will be my last question. Can you give any color on the nature of the product and customer mix, I mean is it a different end market customer, is it a customer that's further away or what kind of product mix are you seeing?
James B. (Jamie) Rogers - VP and COO: As California picks up and some of the markets a little further from the plants are picking up ,the percentage of our product that we're shipping is going a little further and that's reducing our overall price, and that's an indication or an example of the sort of thing we're seeing.
Operator: Kevin Money, Cleveland Research Company.
Kevin Money - Cleveland Research Company: Most of my questions have been answered. I just wanted to – could you give some color as to how much was in cement – how much of the volumes you would consider sort of large project volumes versus more of a short-term spot type of volume?
Kenneth R. Allen - VP, Finance, Treasurer and CFO: This is Ken, let me take a shot at that. We have – if you're trying to figure out how quickly a price increase or a price change moves through our P&L, we do have public works and roughly over time half of our cement goes into public works that tends to stretch things out. On the other end of the scale, residential tends to be something that moves through our P&L shipments from backlog pretty quickly. And so, it takes about two to three quarters for a price increase to equally realize given our backlogs, and I tell you, I'd have to go back and look at some of the individual projects. But clearly, we've got a big slug of projects there that are long-term highway public works projects.
Kevin Money - Cleveland Research Company: As we sort of move through the recovery here in residential and sort of non-res, non-public takes up a bigger share, do you expect that kind of duration to reduce as we move forward or how do you look at that?
Kenneth R. Allen - VP, Finance, Treasurer and CFO: It's a good question. Logically, you would expect that to be the case. Having watched the Company go through a couple of cycles over the last two to three decades, it's kind of hard to look at the numbers and see that it really changes a lot over time.
Operator: Mike Betts, Jefferies and Company.
Mike Betts - Jefferies & Company: I had three questions. The first one is quite a detailed question in so much as it's on the schedule that Linda sent out. It shows on that, the last page, $3.6 million profit from the sale of real estate in aggregates. But I didn't really see it in the other income line in aggregates. Could you maybe give me some idea if am I reading that right and what happened if there was some offset? Secondly, huge difference in the profitability between the ready-mix assets in East Texas that you're acquiring and what you've got currently. I mean, I guess, what I'm interested in that is what's the cause of that? Is it because it's lot of small rural markets, but more importantly, is that some indication of the sort of potential that you think that you could achieve in the rest of the business or in reality are those just long term much more profitable areas? Then the final question, you referred to some costs in terms of refurbing the existing Hunter kiln. Could you quantify those for us? Also maybe talk through you've talked about the NESHAP costs in the past, but when do they start going through? Should we start by putting those in in FY 2014, and if so, how much?
Kenneth R. Allen - VP, Finance, Treasurer and CFO: Mike, this is Ken, and I think I kept up with your questions here and I'll give it a shot. Keep me on track here if I get off track. Good insightful questions, the sale of the land actually occurred in our expanded shale and clay operations in California, and so as a result they're down in the discontinued operations. So, good eye on that. Your question about East Texas is also a good one and really, you hit the nail on the head, rural markets tend to have higher margins and generally higher profitability and what we have acquired here, and this is one reason for excitement about this is those are the type of markets we've acquired on there.
Mike Betts - Jefferies & Company: Let me follow-up on that Ken, if I could, I mean, the profitability is high but it did drop substantially in the year. Were there any one-offs in previous years or was that just the market?
Kenneth R. Allen - VP, Finance, Treasurer and CFO: A couple of things, Mike, that market out there has tended to lag to metropolitan markets, so the downturn came a little later than metropolitan markets, and that's the primary driver. Just looking forward rather than talking about how those assets performed under different operation management and things like that. We've kept those folks, so we're very excited about that, but just not wanting to comment on past performance. We think that overall our total ready-mix operations ought to eventually earn an EBIT percentage, EBIT margin in the high single digits. A market like – we're talking about here to be above that, and as things come back, we got to see some improvements and you know these new assets that we have roughly right now are shifting around million yards a year on an annual basis and they have done much more than twice that. That gives you a little bit of a sense of the upside that these operations have to.
Mike Betts - Jefferies & Company: The final question which I rushed, is the Hunter cost of refurbing the existing kiln and some idea of the NESHAP spend in terms of how much of that might be in FY 2014?
Kenneth R. Allen - VP, Finance, Treasurer and CFO: We've said in the past that total environmental capital spending ought to be in the $30 million range and just in very, very rough numbers you could split that about evenly between other spending on NESHAP Hunter wanting to bring that back up in the manner Jamie talked about. If we are going to bring that back online within '12 to '14 months. You are going to have to see a decent part of that being spent in fiscal year '14. We have a little more detail maybe in July on that, but if I were modeling the company having split that out in the timing and you had to move the needle too much, I'd put half of it in fiscal year '14 and half of it in '15 for now.
Mike Betts - Jefferies & Company: Do you have DD&A for the East Texas operations?
Kenneth R. Allen - VP, Finance, Treasurer and CFO: We'll provide that in the July teleconference. Right now as we said in the 8-K filing we've got to do our final calculations on valuation to understand more fully the game on the transaction and that will give us the answer to your question. So we'll have a little more detail here in the summer.
Operator: Glenn Wortman, Sidoti & Company.
Glenn Wortman - Sidoti & Company: You appear to be outperforming the markets in Southern California. Can you confirm if that's the case and if so what's driving that?
Mel G. Brekhus - President and CEO: Glenn, I think over time we're going to be in line with the rest of the market, but we've got a different mix of business that Ken alluded to and we – I think from time-to-time you'll see it outperforming market, but over time I think we'll be in line with it over the long haul.
Glenn Wortman - Sidoti & Company: Then can you just outline any specific recent or planned pricing actions for ready-mix and aggregates?
Mel G. Brekhus - President and CEO: Yeah. I think I spoke this a minute earlier. Ready-mix is a little bit more fluid, more bid, more job to job. You've seen what we've done so far for three months and nine months. I think the most recent formal price increase that we had is in GSW March 1 in $6 range again that be for North Texas or for GSW but kind of fluid and trending up in the other sub markets as well. Aggregates, we've announced price increases for both North Texas and Central Texas. North Texas in the April timeframe for $1 for aggregate, $0.50 to $1 for fine aggregate and then Central Texas, I think for June $1 for both.
Operator: Jim Barrett, CL King.
Jim Barrett - CL King: Ken, could you also talk further about the East Texas asset you bought from Trinity. What is the average age of those trucks? What is the foreseeable capital expenditures in that regard?
Kenneth R. Allen - VP, Finance, Treasurer and CFO: I would have to look. You're asking a real good question and it really gets to how you might operate these assets versus a metropolitan area. You know in a metropolitan area we might try to move 9,000 yards through a truck a year and it's going to be significantly less than that in a rural market. So you tend to see a little older average age of the truck. It's going to be – Jamie, it doesn't move the needle too much. It's going to be older than a metropolitan market.
Jim Barrett - CL King: I can understand, so there is less wear and tear. A very basic question on the kiln being commissioned at Hunter, should we assume that because it's new there will be an extended period of time before required scheduled maintenance?
Kenneth R. Allen - VP, Finance, Treasurer and CFO: I would tell you one of the things about new kiln coming up, that's again a good question. We're just going to have to find that. It's one thing for the kiln to run one or two months traded capacity or something like that, it's fine for the plants that we're on six to eight months straight, particularly in new plant when you're trying to figure out all the different tweaks and everything to optimize it. So, we'll just have to find out. I think the key is to this point we believe we have the kill we wanted to have and that's a good and basic news at that point.
Operator: (Karen Tuda), D.A. Davidson & Co.
Karen Tuda - D.A. Davidson & Co: Just a follow-up on the planned maintenance, I was wondering if you had any scheduled for the fourth quarter.
Kenneth R. Allen - VP, Finance, Treasurer and CFO: This is Ken. We have no major unusual maintenance plan for the fourth quarter. Good question.
T. Lesley Vines - VP, Corporate Controller and Treasurer: We're getting pretty close to the end of time here.
Operator: Ladies and gentlemen this concludes the conference call. We would like to thank you for your participation and you may now disconnect.