Texas Industries Inc TXI
Q4 2013 Earnings Call Transcript
Transcript Call Date 07/11/2013

Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the TXI Fourth Quarter and Year-End Results 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. This conference is being recorded today, July 11, 2013.

I would now like to turn the conference over to Les Vines, Treasurer. Please go ahead, sir.

T. Lesley Vines - VP, Corporate Controller and Treasurer: Thank you, Theresa, and good morning, everyone. Thank you for joining us for our fourth quarter and year end conference call and webcast. As always, we appreciate your time and interest in TXI. 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 year and then follow with your Q&A. As usual in an effort to ensure that everyone has an opportunity to ask his or her questions we would ask that you limit your initial questions. Thanks for your help.

Before turning things over to Mel, 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'll turn it over to you, Mel.

Mel G. Brekhus - President and CEO: Thanks, Les, and good morning everyone. My message on our last call remains valid today. I'll remind you that, that message was that all of our markets are improving, all of our markets still have a lot of upside before getting back to historic averages and peaks, and we are positioned better than ever to take advantage of the potential in all of our markets. Construction activity continues to improve in our major markets. Shipments during the fourth quarter were at levels we haven't seen for quite some time.

The cement shipments in the fourth quarter were up 32% compared to a year ago. Texas shipments were the highest May quarter shipments since 2008 and California shipments for the quarter were the highest May quarter shipments since 2007. I expect demand for building materials to improve further during the upcoming year, and I believe we are uniquely positioned to meet this growing demand.

The completion of the commissioning of our new cement kiln in Central Texas gives us the immediate ability to supply an additional 500,000 tons annually. Also, the addition of 42 ready-mix plant sites during the quarter in attractive East Texas markets improves our ability to capitalize on the future expansion of the Texas economy.

As our markets continue to proceed to the return of mid-cycle levels and beyond, our focus is three-fold. Number one, enhancing our ability to serve our customers; number two, leveraging and improving upon the cost structure enhancements we have made during the downturn; and number three, accelerating the realization of our earnings potential.

In conclusion, I am very excited about the future for TXI. Over the past five years, we've been transforming the way we conduct virtually every aspect of our business, and this transformation continues today. I look forward to all our stakeholders reaping the benefits as we move into a more normal economic environment.

With that, I'll turn it over to Jamie.

James (Jamie) B. Rogers - VP and COO: Thank you Mel. Mel referred to our cement shipment levels for the quarter and I'd like to add a little bit more detail that further illustrates the strengthening of our margins. Cement shipments for the month of May, Mel referred to the quarter, but for the month of May in Texas were the largest in 10 years for the month of May. In California, cement shipments again for May were the largest since 2006.

It's not just cement that's realizing improved demand. Major markets for aggregates and ready-mix realized 20% or better increases in shipments in the fourth quarter compared to a year ago. I share Mel's view that this positive trend in demand should continue in the near-term. One indicator that supports this view is housing starts, and in May, housing starts in the four major metropolitan markets in Texas reflected or continue to reflect double digit improvement year-over-year. California's major markets showed 40% or better improvement.

Given the improvement in demand, pricing in Texas for all products improved during FY '13, and I believe that that momentum will continue during the current year as well. Also, increased operating costs in California associated with complying with AB 32 requirements for carbon emissions that impact the entire industry should support additional price increases for that market.

Looking forward, our focus is to continue to build upon the foundation we've been establishing in the last few years. We're very pleased so far with the new ready-mix that we acquired in March, and that integration is going well and continues. We are also striving to ensure that we're effectively coordinated among our product lines in each of our markets to optimize our ability to serve our customers.

As Mel mentioned, we completed the commissioning of our new kiln in Central Texas. The plant is running at capacity, and I am very pleased with how it is performing. The team down there did an incredible and outstanding job.

Also, given the improved outlook for demand, we have announced that we are accelerating the work required to bring the original kiln, what we call Hunter 1, back on line and we expect to resume production from this kiln in the early part of the next calendar year. That will allow us to produce approximately 900,000 additional tons of cement.

Finally, we are looking at all of our operations to make sure that we are in the best position we can be to deliver the product required by our customers where and when they need it, making sure we have the distribution capabilities to efficiently meet growing demand is a key focus for us.

I am proud of our team's accomplishments. Over the last few years, we significantly redeployed capital and realigned our market position. We did so in order to put ourselves in a position to better maximize our ability to benefit from the inevitable recovery. I look forward to it realizing the fruits of this effort.

With that, I will turn over to Ken for his comments.

Kenneth R. Allen - VP, Finance, Treasurer and CFO: Jamie, thanks, and good morning, everyone. As Mel and Jamie have already indicated, TXI ended the fiscal year on a very good note. However, with the assets swap we completed in March where TXI obtained significant ready-mix assets in the East Texas region and we gave up our expanded shale and clay operations, that transaction and the startup of the new cement kiln in Central Texas we've already mentioned. Also the impact of the tax provision on our earnings from continuing operations, it's a little difficult to tell, just how good of a result we had for the third quarter, and Mel and Jamie have talked about the operational actions and improvements we've made, you can also see from the top line, okay, that the year ended in a very good place.

Total sales were up 35% for the quarter. Average realized cement prices in Texas were up 5%. Aggregate prices increased 9% and ready-mix prices were up 8%. In Texas, cement shipments increased 34% to 908,000 tons, and that compares to 680,000 tons last year. California cement shipments were up 29% to 391,000 tons versus 304,000 tons a year ago.

Aggregate shipments were up 15% and ready-mix shipments increased 72%. Now half of that increase really came from market improvement in our metro areas and the other half came from the volumes related to the concrete assets we acquired through the swap, I mentioned earlier on. Pre-tax income from continuing operations was $4 million for the quarter, and this compares to a pre-tax loss a year ago of $2 million after you exclude last year's $60 million of major one-time gains. Now, the recent May quarter's pre-tax income of $4 million was negatively impacted by approximately $3 million due to unexpected outages at all three cement plants late in the quarter. All recall the depreciation increase by about $1.8 million in the quarter as the new kiln was declared fully commissioned by May 1.

Now, even though the new kiln has come up to speed very well, there's still improvement to be gained on the cost side. As an example, during start up, we've used coal as a fuel source, in order to generate as stable an operating environment on the new kiln as possible. A year ago, on the original kiln at the plant, we were using a much more cost effective mix of fuels.

When we look at the entire year, I think we get a little better picture of some of the trends that were on as well. Now, net sales increased to 17% or by approximately $100 million, while gross profit increased $34 million. The gain we experienced with the new kiln and the new read ready-mix operations are more fully integrated, we believe we'll see improvement on the cost side.

We also expect margin improvement in read-mix operations as the new plants add approximately 1 million yards of shipments, as the margins we typically experience as the higher margins, we typically experience in the more rural East Texas region.

Now finally, recall that almost two years ago TXI embarked on a program to reduce costs and increase efficiency. Our goals were to enter fiscal year 2014 which we just started here in June with the expectation of generating at least a 15% gross margin for the year and also (get) SG&A expenses below 8% of sales. Now like we have already talked about a lot has changed in TXI in the last two years. But even so I believe we are in position to achieve both of those goals with the gross margin standard being a little more of a stress than the SG&A goal. But that has to be just the start. Over time we will work to do better in both. We have got to and always stay competitive.

As Mel mentioned a little earlier given our goal of generating approximately $400 million in annual EBITDA we have got to continue to see margin improvement in all sides of our business.

So a good phase can lead to a good start and as we look into fiscal year 2014 we think the trends are with us. For some details though for you we are modeling the Company, please recall that our annual depreciation expense will increase to $79 million to $80 million a year and interest on the income statement will also move to a total of approximately $69 million as result of completing the commissioning of the new kiln.

TXI's tax rate for the first three quarters of fiscal year '13 was very low and then again in the fourth quarter caused the rate to improve significantly or to move significantly. If I were modeling TXI in fiscal year '14, I would use a very low rate again, very similar to those that we used in the first three quarters of fiscal year '13.

With regards to capital spending, we expect that spending for sustaining capital will fall in the range of $30 million to $40 million in fiscal year 2014. The most important project in the coming year will be to add a new bag house from the original Central Texas cement kiln in order to allow that plant to start up early in calendar year 2014. This will effectively increase our current ability to produce some ships in that by 900,000 tons a year. Again, as we've already alluded to, given our current construction trends, we believe the new production will be well timed.

With our major cement projects of the last decade behind us, we'll continue to carefully watch how we deploy free cash flow. Any capital expenditures above the sustaining range I mentioned earlier will be focused on projects that advance and/or accelerate or progress towards the attainment of the $400 million EBITDA goal I mentioned earlier.

Finally, speaking of being good stewards of capital, the Central Texas cement project was completed at a cost of $374 million. Now, this is on target with the budget we set prior to the restart of construction. Leading this budget and in obtaining such a good commission is a remarkable result given that the project was completely stopped and then restarted after more than a year of delay; still a good start.

With that, I'll turn things back to Les. Les, please go ahead.

T. Lesley Vines - VP, Corporate Controller and Treasurer: Yeah, Theresa, I think we're ready for Q&A.

Transcript Call Date 07/11/2013

Operator: Garik Shmois, Longbow Research.

Garik Shmois - Longbow Research: First question is just on energy costs. You mentioned that you are relying on greater coal use to furnace the Hunter 2 kiln. And I'm just wondering if you could quantify how much that added to unit costs during the quarter and provide a timeline of when you think you'll get to more of a blended or lower cost energy use.

Mel G. Brekhus - President and CEO: Garik, that's – with all the different changes and adjustments we made during the quarter with the commissioning versus looking at the older kiln, it's really difficult to do an apples-to-apples comparison, but for unit cost, we're up. As we've shown in the press release, that's going to move the needle probably around $1 return, it's something like that for all the kilns we had at TXI.

Garik Shmois - Longbow Research: So the majority of the cost inflation that you saw this quarter would be attributable to the higher DD&A as well as the unplanned maintenance, is that kind of a fair way to think about it?

Mel G. Brekhus - President and CEO: I really do. Again, $3 million spread among all three plants for the unexpected downtime and then almost $2 million for the depreciation. It covers most of it and that's a good point.

Garik Shmois - Longbow Research: Are you expecting any maintenance to bleed into the second quarter – or sorry, into the first quarter?

Kenneth R. Allen - VP, Finance, Treasurer and CFO: Yes. Good question. We don't have any major maintenance scheduled in the first quarter. Remember, a year ago in the August quarter we had about $3.5 million worth of major maintenance expense.

Garik Shmois - Longbow Research: And I guess just lastly on volumes in Southern California, highlight of the housing market has been strong. Is that the real significant driver of the really strong volume growth in Southern California, or are you starting to see a pick-up, whether it's on the infrastructure side or on the non-res side as well?

James (Jamie) B. Rogers - VP and COO: It's Jamie. I think that, as you know, the housing starts are really a good proxy and correlator to the other segments as well that you alluded to. And I guess what I would also say, when you see big numbers like 40% or double-digit, we are in no – we are not in a boom time in any of our markets and we still feel like we've got a lot of runway ahead of us. We're just coming off really low lows especially in California.

Operator: Kathryn Thompson, Thompson Research Group.

Kathryn Thompson - Thompson Research Group: Just wanted to follow-up from last quarter's discussion of cement pricing in California in particular. You took a two-tier approach, $2 increase in January and a $3 in April. When will the benefit of these combined increases reasonably flow through numbers?

James (Jamie) B. Rogers - VP and COO: Kathryn, it's a little bit hard to model that with the specificity that I think you're looking for. Given the mix of business, given the mix of the geography, what I can say with some confidence is that we were successful with both of those. And as Ken alluded to, it's a start, and we've got – we expect a lot more progress, but it's a start.

Kathryn Thompson - Thompson Research Group: We've just been able to see some pricing realized already in other markets, not just Texas, but we do checks on other markets in the U.S. where they have price increases and I just want to make sure that there isn't any other thing that we should take into consideration like mix or any other factor that could skew, how we think about year-over-year comps or even sequential comps with pricing?

Kenneth R. Allen - VP, Finance, Treasurer and CFO: Kathryn, this is Ken. That's a good point. We have seen some price movement up, but as the market's expanding, we're also shipping to a little further destinations and that geographic mix seems to offset pricing improvement a little bit too. It's all real good. We'll take those extra tons, we sure will, but that is a factor, when you've got relatively small increases weighing against the mix shift that we're looking at in California as well.

Kathryn Thompson - Thompson Research Group: Could you give a little bit more color on how the Hunter plant is running since commissioning and how we should think about cost over the next several months, because typically there will be just overall cost of – there is inevitably hiccups that happen over a several month period after commissioning of a new plant.

Kenneth R. Allen - VP, Finance, Treasurer and CFO: Kathryn, you took the words right out of our mouth, a lot of times, it takes a year or two years to feel like you've really hit the sweet spot on some of these things. I think you'll see good improvement in cost in all of our cement operations, being primarily driven by the new Hunter kiln. If you take the depreciation out now, okay, over the next year, it's very difficult to give you some idea what that number's going to be in the first quarter versus the second quarter, right now, but the plant continues to run very well. We've got June behind us and we're in mid-July and the runtime on the new kiln has just been exceptional.

Kathryn Thompson - Thompson Research Group: So, in the prepared comments you talked a little bit about how May was doing and we know on our checks that there could be some pretty big swings and particularly some areas that have higher levels of precipitation. What were you seeing in terms of June, once you go from May to June and also if you can maybe comment on just much farther looking out at bid activity, and so in other words, bid activity that could impact your numbers 12 to 18 months from now?

Kenneth R. Allen - VP, Finance, Treasurer and CFO: I think we had a little bit wetter weather in June in Texas than we expected and we saw that in our daily shipments, but I think your second point or question is more on target in terms of how we think about it, because looking forward – looking at our backlog, the mix of potential business that's available to us, looking forward, all those indicators are very positive.

Operator: Jack Kasprzak, BB&T Capital Markets.

Jack Kasprzak - BB&T Capital Markets: Can you tell us the trailing 12 month ready-mix production effective for the acquisition you have done, sort of a pro forma trailing 12 month ready-mix production number?

Mel G. Brekhus - President and CEO: Yes, I could. The trailing volume for those assets, 12 months before we got it is in the 1 million yard range.

Jack Kasprzak - BB&T Capital Markets: So that's what you acquired.

Mel G. Brekhus - President and CEO: Yes.

Kenneth R. Allen - VP, Finance, Treasurer and CFO: Just as a general indication so people could kind of get a sense for that. Remember I said that we expect in fiscal year '14 that we have added about a 1 million yards. We'd expect to do a little bit better than that with growth but I just wanted to be sure people added that acquisition's volume in as they model the Company.

Jack Kasprzak - BB&T Capital Markets: Was there anything else and you talked about – there were some questions on the cost side already. You mentioned on the unscheduled maintenance and startup and coal, so that's all appreciated. Was there anything – it seemed like though on the cost side some inflation in all the businesses and all the segments. Was there anything else that's noteworthy that affected the quarter in terms of the cost performance?

Kenneth R. Allen - VP, Finance, Treasurer and CFO: That's a good question. I think you see some transaction related – not really transaction related but integration related expenses early on with ready-mix and also we not only have our markets improved dramatically but we have come out of the winter into the spring, so the ship – seasonal shipment cycle has been pretty dramatic as well. I think we have struggled a little bit to keep up with all of that, and that's caused a little higher cost. But as we go through this summer and have a little more time to adjust, I think you'll see things settle down. And Jamie, you can add some color as well.

James (Jamie) B. Rogers - VP and COO: Well, we'll see how colorful it is. But the thing I want to mention, Jack, is that – which I think we alluded to in our prepared comments, that AB 32 on a going-forward basis, the cost of that program will be a significant impact to us in California, and it's not only us, it's other industry, but that is something that we are learning about and will certainly hit us on the cost side going forward that we're getting used to.

Mel G. Brekhus - President and CEO: Jack, Jamie is absolutely right about that, but in May, we really didn't have much of an impact.

James (Jamie) B. Rogers - VP and COO: Going forward.

Mel G. Brekhus - President and CEO: Yeah.

Jack Kasprzak - BB&T Capital Markets: So, the seasonal issue you raised, Ken, some of your business has been ahead of time, and you know it's coming and you're prepared for it, but maybe on the private side and smaller jobs, there's less of a lead time. Are you, in part, suggesting that you guys have been a little bit surprised that how well volumes have trended so far this season?

Kenneth R. Allen - VP, Finance, Treasurer and CFO: I don't think at that so much – and I'd tell you as a CFO, I'll take some of the responsibility here. You've heard us talk about focusing on cost reduction and efficiency improvement with almost a laser-like focus for the last two years, and that really continued on through the – and to the weather and things like that as well, and it's impossible to time some of these things, but I think that was a part of the impact as well, and that was – that's probably responsible for some of that.

Jack Kasprzak - BB&T Capital Markets: I appreciate those comments given the depth of the downturn. I'm not sure that anybody is not as focused on cost also, but anyway, thanks guys, appreciate it.

Operator: Todd Vencil, Sterne Agee.

Todd Vencil - Sterne, Agee & Leach: Can you talk about how your capacity utilization stands right now? And well, I guess Texas and California overall, you frequently give us those numbers, and I appreciate that, for the industry, but also your plant in North Texas and in California?

James (Jamie) B. Rogers - VP and COO: Yeah. Todd, it's Jamie. We are getting closer to capacity at our North Texas plant. In Central Texas, as I think we alluded to, we're running there now with potential hiccups as we talked about going forward, but we don't know about – but we're running there now. And in California, I think we're close to 65%, something like that, so we're improving there as well.

Todd Vencil - Sterne, Agee & Leach: As you said you're closer to North Texas, is that where you’re kind of at an 85 to 90 range?

James (Jamie) B. Rogers - VP and COO: I think it's getting close to that, yes.

Todd Vencil - Sterne, Agee & Leach: Switching over – well, actually to sales there just for a second, and this is curiosity and arithmetic for me, but what was the official commissioning date for Hunter 2 from an accounting standpoint?

James (Jamie) B. Rogers - VP and COO: I think we talked about it at the end of the quarter and really about May 1.

Todd Vencil - Sterne, Agee & Leach: Then, switching to aggregates, nice price performance there, I get that it's pretty small for you guys now, but anything we ought to think about there in terms of price trends?

James (Jamie) B. Rogers - VP and COO: Todd, let me broaden the answer. I mean, you see the price improvements there, and I think there is an interest and support for moving that up in aggregate. But in cement, we will be announcing a $5 price increase effective September 1for Texas. And in ready-mix, I mean that's a little bit more fluid and kind of more job-to-job and bid-to-bid. But we've got formal announcement in North Texas or DFW here for $5 effective August 1. And in our other regions, we expect – I'll say, in most of our other regions, we expect similar pricing announcements for September through October from us.

Todd Vencil - Sterne, Agee & Leach: Have you seen those announcements from a similar magnitude, similar timing from other players yet?

Mel G. Brekhus - President and CEO: Yeah, this is Mel. We have seen similar announcements in cement, and as Jamie said, ready-mix is fluid, but we've also seen some announced ready-mix prices, which – especially in Texas and especially in North Texas and DFW is somewhat unusual, but we consider it very positive.

Todd Vencil - Sterne, Agee & Leach: And then on the aggregate side, on the nice (piece) you guys had in the quarter, was there a mix effect in there? I mean, I'm guessing there was, but can you sort of unpack mix versus sort of same product, same location?

Mel G. Brekhus - President and CEO: Todd I am unsure, are we talking about the aggregate price?

Todd Vencil - Sterne, Agee & Leach: Yes.

Mel G. Brekhus - President and CEO: I think there was some mix because the price to be maybe a little higher than it would have been without the mix change. Not quite clear where we're going to stand in the August quarter, but you might see that it's down a little bit just because that mix piece flows out.

Todd Vencil - Sterne, Agee & Leach: Was that a product type mix for you?

Mel G. Brekhus - President and CEO: It's a good question. More geographic.

Operator: Chris Olin, Cleveland Research Company.

Chris Olin - Cleveland Research Company: I just wanted to go back to the aggregate segment and I apologize if you touched on it, but the margin was a little bit lighter than I would have expected considering the 1 million tons that you did. Did you breakout what the outage impact was in that and can you just help me a little bit better understand where the costs are coming from?

Kenneth R. Allen - VP, Finance, Treasurer and CFO: Chris, this is Ken. Remember it's the outage impact we talked about was really on the cement side, but your intuition is pretty good. With the upturn in the aggregate piece like you have mentioned, and I mentioned with Jack's earlier comment, we've been running our plant a little harder and had some repair and maintenance expense that was a little higher than normal, which would certainly impact what you are talking about. Then also I think staffing and overtime contributed to some of the costs, as these things – as we get some more time behind us, I think you'll see that – I think there also was an impact associated with the timing of stripping cost to get access to the reserves.

Chris Olin - Cleveland Research Company: Historically, the aggregates industry has talked about 50%, 60% incremental margins, is that something that your operations can do once some of these issues gets straightened out?

Kenneth R. Allen - VP, Finance, Treasurer and CFO: You'll see good margin improvement in our aggregate operations as volumes improve. I've got to tell you what we really are focused on right now, is that margin improvement with increment returns on cement. That's where the impact is really going to be.

James (Jamie) B. Rogers - VP and COO: Yeah, and I think you see those types of margins on the initial incremental tons but at some point you start to have to add additional shifts and things like that to get the other ton, and when you do that, you're going to get some more normal type margins.

Operator: Brent Thielman, D.A. Davidson.

Brent Thielman - D.A. Davidson & Co: Ken, I was wondering, should we be thinking about a $9 million to $10 million annual level for maintenance spend this year?

Kenneth R. Allen - VP, Finance, Treasurer and CFO: For the cement plants?

Brent Thielman - D.A. Davidson & Co: That's right.

Kenneth R. Allen - VP, Finance, Treasurer and CFO: Okay, given that we have the new plants online and that we expect to bring an original kiln online later on in the year, I think you'll see total – major maintenance that we'll call out during the year and in the $10 million to $13 million range for the whole year with something like $7 million to $10 million of that being at our North Texas plant. In addition to that with the original kiln coming online I think you will see some additional repair and maintenance expenses there that maybe in the $2 million to $3 million range that would be a little bit (after) normal.

Brent Thielman - D.A. Davidson & Co: Then I am sorry if I missed this or skipped over it. Could you clarify what led to the tax gain this quarter?

Mel G. Brekhus - President and CEO: The impact of a lot of – we recognized a big gain in the fourth quarter. Our operating results for the fourth quarter in general were a lot better and were positive and as a result of that the losses that we didn’t benefit as much of fully due to first three quarters we got the benefit of some of that in the fourth quarter.

Brent Thielman - D.A. Davidson & Co: Then just lastly, are you starting to see some shift in terms of end markets which are driving your business namely sort of residential versus non-residential or is the mix fairly similar to what you have been seeing in the last few quarters?

Mel G. Brekhus - President and CEO: We are certainly seeing the pickup in residential and it just drives like we have said before it drives the other segments indirectly as well and we – depending on where we are mix of business tends to be more skewed towards commercial and public work but there are certainly local markets that we participate in where we are seeing the direct impact of the residential as well.

Operator: (Steve Miller), BlueMountain Capital Management.

Steve Miller - BlueMountain Capital Management: Just had a quick question. Wanted you to walk me through your guidance, EBITDA reconciliation, specifically on the cash flow side? So, that has you going to, I guess, $59 million, towards $60 million for this quarter, right, in EBITDA? And I'm wondering, when I try to adjust that to get – adjust the core continuing stuff, is it right to subtract out of that the, $59 million, $60 million of gain on asset sales?

Kenneth R. Allen - VP, Finance, Treasurer and CFO: I don't think so, because what you're looking at in that EBITDA number is our continuing operation EBITDA, and it does not reflect anything with respect to our discontinued operation. So, we operated our sand and shale and clay operations really for three plus quarters and then we have the gain on the sell, and none of that is reflected in those numbers.

Steve Miller - BlueMountain Capital Management: But I don't understand, you have on your cash flow statement kind of negative $60 million for that gain on sale, indicating it was a non-cash item, right? Shouldn't I, if I wanted to look at cash EBITDA subtract that out?

Kenneth R. Allen - VP, Finance, Treasurer and CFO: Sorry, that was a non-cash item, certainly, because that – the gain was attributable to an asset swap, but we exchanged the expense on clay operations for the ready-mix operations in effect.

Steve Miller - BlueMountain Capital Management: But it's fair to say that you're not going to continue to use asset swaps as an item, right, that's a sort of a one-time item. So if I wanted to pro forma that out, especially considering its non-cash, I'd want to take the $60 million of EBITDA that you present, then subtract out the $60 million non-cash gain on the asset swap. So, it's definitely not going to be a continuing item and, I get to the zero EBITDA.

Kenneth R. Allen - VP, Finance, Treasurer and CFO: Yeah. There are so many different things moving around on tax and everything. If you really take the pre-tax income number of $4 million and add back the interest expense of $10 million, you're at $14 million, and then you add back the depreciation in the quarter, you get to $31 million or $32 million.

Steve Miller - BlueMountain Capital Management: Then, the other question is, is you have the net income from continuing operations of $15.6 million, and then you have the loss on discontinued operations, right, how much was that again? That was…?

Kenneth R. Allen - VP, Finance, Treasurer and CFO: You've thrown us for a loop, when you say we had a loss on discontinued operations.

Steve Miller - BlueMountain Capital Management: Sorry, gain on discontinued operations. Right, that number was $28 million, right? So, I'm wondering you guys have the $60 million one-time gain on the asset swap, but you only have the $28 million gain in discontinued operations. So, I'm sort of wondering where does the other $31 million go?

Kenneth R. Allen - VP, Finance, Treasurer and CFO: Well, it's one of the nuances of the way you're required to report discontinued operations and that $28.5 million number is a net of tax number, and so you have the gain that we reported is kind of a gross pre-tax gain and then tax effective to get into the discontinued ops number.

Steve Miller - BlueMountain Capital Management: So you're saying that the tax rate is – what's the tax rate then that you used to get from the $60 million gain to the $28 million net of tax, so it sounds like a pretty high tax rate.

Kenneth R. Allen - VP, Finance, Treasurer and CFO: I think we're also talking about the wrong gain number because the gain in the fourth quarter of the current year was $44 million. In the prior year period we had a $60 million gain. So, a 36% to 37% tax rate in discontinued operations before we work out.

Mel G. Brekhus - President and CEO: Steve, I feel – I mean, you are doing the sum of the things we actually dealt with internally here as well. I'd suggest if you don't mind, maybe you and Les just deal with that offline because that's the – it may take you a couple of iterations there to pick up all the pieces.

Steve Miller - BlueMountain Capital Management: Yeah, sure thing. It makes a lot of sense, because I mean you've got the $60 million adjustment and I'm just sort of wondering if all of that isn't going into that discontinued operations line. It looks like some of that benefit is kind of flowing through in the continuing operations, which would make it look like the continuing EPS a little bit larger than it should be. But maybe there is a tax issue I'm missing there and maybe on either direct reconciliation I'm a little bit wrong in calculating zero and taking out that $60 million one-time gain.

Mel G. Brekhus - President and CEO: Yeah, all your questions do make a lot of sense. They're very reasonable that I think on a teleconference will probably better off seeing if we could help you offline on that one.

Steve Miller - BlueMountain Capital Management: That sounds great. We'll catch up offline. Thanks a lot guys.

Operator: Mike Betts, Jefferies & Company.

Mike Betts - Jefferies & Company: Just two questions for me, if I could. One firstly on cement, and apologies if I missed it earlier, but the 29% growth in California volumes, I mean, I'm surprised it's that high given having seen the kind of industry data. I mean, is that just because of the specific areas you're selling into or was it the comment earlier about selling into surrounding regions as well. Then just on the ready-mix, half of the growth in shipments I think as in the press release is due to the East Texas operations, I thought they had a very significantly higher selling price for ready-mix. Maybe you need to sort this offline as well, but do you have kind of an adjusted ready-mix price, so what it would look like without the East Texas operations, because I would have thought with East Texas in there we do have seen a bigger increase in your ready-mix price?

Kenneth R. Allen - VP, Finance, Treasurer and CFO: Mike, this is Ken. I'll try to answer your second question and then Jamie can answer your question about shipments in California. We do have a little higher price in our East Texas operations, you're right on that. Remember, once we have two months of operations here in our ready-mix operations from East Texas, let's see how things flow and grow in fiscal year 2014 on that. What we do know is and you have heard Mel say that we were in a high-single digit EBIT margin for all of our ready-mix operations. What we do know is those East Texas markets generate EBIT margins that are greater than that even.

Mike Betts - Jefferies & Company: So, I had a figure of over $100 per cubic yard in mines for East Texas, is that wrong, is that just too high?

Kenneth R. Allen - VP, Finance, Treasurer and CFO: As a general rule for a broader region, because this region covers Belmont to Southwest Arkansas and (indiscernible) in the north. That's going to be too high of a average number for that broad of a region. I'm sorry, I do want to add that's too high of a number today.

Mike Betts - Jefferies & Company: And on those California cement shipments?

James (Jamie) B. Rogers - VP and COO: It's Jamie. I think, when you're looking at California and you alluded to the broader area such as California in terms of where we ship to, but, my comment is, when you're coming off such a low and you see these big numbers, don't read too much into that. So, you know that the California market went from 17 million tons – it peaked at 7 million tons. I'm going to repeat myself. I just wouldn't read too much into big numbers.

Kenneth R. Allen - VP, Finance, Treasurer and CFO: Jamie, if I can, just relate as I – in reading some of the other analyst reports as well that came out before the call, the PCA is talking about Texas cement consumption growth in calendar year '13 and '14 of 5% to 10% growth in that range, and over the next year, we'd expect to do better than that, because we're in a position to improve our market share like you've seen. Out in California, the PCA, I think is looking for something that's a little more reasonable, higher, maybe 10% or something like that, and out there I think our expectations are to really probably more closely following market growth.

Operator: Mr. Vines, there are no further questions at this time. Please continue with any closing remarks.

T. Lesley Vines - VP, Corporate Controller and Treasurer: All right, well, again, thank you everybody for joining us today, and…

Operator: Pardon me, someone just queued for a question, would you like to take that question?

T. Lesley Vines - VP, Corporate Controller and Treasurer: Yeah, we'll take the question and then we'll wrap it up…

Operator: Philip Volpicelli, Deutsche Bank.

Sean Wondrack - Deutsche Bank: This is Sean Wondrack sitting in for Phil today. Just taking a look very quickly. Obviously, you guys have been turning your organization east on a couple of asset transfers and a couple of asset swaps. I guess, going forward, do you foresee yourselves doing this in the same magnitude as we have done in the past two years? I think in fiscal year '12, you had about $68 million and in fiscal year '13 you had roughly $64.5 million. Do you have a lot of assets or a lot of opportunities out there to do more of these asset swaps going forward or do you think they are going to kind of normalize over time?

James (Jamie) B. Rogers - VP and COO: I would say that we will certainly continue to look for opportunities to improve our position in the markets that we are operating in. As you look at our operations and we subscribed in our financial statements, you can see that there are not a lot of operations that are outside of our core cement, aggregates and ready-mix.

Mel G. Brekhus - President and CEO: Sean, the key – this is Mel, the key is the last thing that Les said. What we are doing and have been doing is we have transitioned over the past few years during this very difficult time, we've been focusing on strengthening our core position which is in cement, aggregates and concrete, and when and if we can do things to enhance our position, that's what we will do, but as you can tell from our assets, we have fewer of those opportunities going forward.

Operator: There are no further questions at this time. Please proceed.

T. Lesley Vines - VP, Corporate Controller and Treasurer: Thank you, Theresa. And like I said, everybody, we appreciate your time and attention this morning and we look forward to discussing our first quarter results next September. Everybody have a great day.

Operator: Ladies and gentlemen, this concludes the TXI fourth quarter and year end results conference call. This conference will be available for replay after 12.00 pm Central Standard Time today through July 25 at midnight Central Standard Time. You may access the replay system at any time by dialing 1-800-406-7325 and entering the access code of 4626096. Thank you for your participation. You may now disconnect.