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Texas Industries (TXI)

Investor Day Conference

April 18, 2013 9:00 am ET

Executives

Thomas Lesley Vines - Chief Accounting Officer, Vice President, Treasurer and Corporate Controller

James B. Rogers - Chief Operating Officer and Vice President

David Perkins - Corporate Director of Communications and Government Affairs

Edwin J. Gerik - Vice President of Aggregate Production and Expanded Shale & Clay

Kenneth R. Allen - Chief Financial Officer and Vice President of Finance

Tom Zais - Vice President of Ready Mix

Ronnie A. Pruitt - Vice President of Cement Production

Melvin G. Brekhus - Chief Executive Officer, President and Director

Barry M. Bone - Vice President of Real Estate and President of Brookhollow Corporation

Analysts

Garik S. Shmois - Longbow Research LLC

Seth B. Yeager - Jefferies & Company, Inc. Fixed Income Research

John F. Kasprzak - BB&T Capital Markets, Research Division

James Barrett - CL King & Associates, Inc., Research Division

David C. Wells - Thompson Research Group, LLC

Presentation

Thomas Lesley Vines

Good morning. This is -- for Austin and being on fixed stream [ph]. This is a pretty good retention rate, the morning after. I'm proud of you all. Or maybe I should be disappointed that you weren't able to go and have more fun on that. I think we have a great day planned for you. I know that -- I trust -- it sounds like everybody is heard, by the way. And I do want to be aware that we, obviously, had a pretty significant event up in Waco which saddens all of our hearts. And it also sounds like its going to disrupt some of our travel getting home. So if you haven't dialed into that, you might want to start thinking about that a little bit. And Linda and Heather and any of us who can will help you kind of sort through that. It sounds like I-35, if you're driving, is going to be a problem.

I'm going to introduce some folks here in a second that are in the room. I thought about -- for those of you who weren't here, I made a comment, I'm going to be stupid and say it again, but it's exciting for me to have all of you on our turf. It's exciting for me to have a whole lot of help answering the questions. I mean, it's going to sound like it's such an easy day that I'm now starting to worry that when I look at my next paycheck, Ken is not going to pay me for today, which I've got to -- a lot of people worked really hard to pull this together. And it's real exciting for me to have the opportunity to introduce to you a large -- a significant portion -- not all, but a significant portion of my teammates. And I can assure you that to the extent that I ever look good, it's because of them. And to the extent that I ever look good, it's a remarkable statement about how good they are because of the raw material they have to work with.

But in the room today, I'm going to do things [indiscernible], but looking back, Terry Marshall, our Vice President of Information Services is back there. Dan Nixon sitting beside him playing hurt [ph]is our General Manager of our Ready Mix operations in Central Texas, runs the show. Next to him is Cary Bartfield, our Sales Manager for Ready Mix here. In the far back is Kimber Knighthart [ph], our Director of Corporate Finance. You need to start to get to know her. You'll be seeing more of her, I'm sure, over the coming years. Leo Fellin, is our Director of Marketing, [indiscerible]. David Perkins is our Vice President of Environmental and Governmental Affairs. John Butz, is our Vice President. He's got a quirky title of Business Analysis and Performance Improvement, something like that. Lyndon, there you are -- Lyndon Zielke is our Vice President of Purchasing. The person who made all this come together, and we all ought to thank a lot is Linda English, our Investor Relations Manager. Linda? The boss of us all, Heather Morris.

Unknown Executive

There you go.

Thomas Lesley Vines

Did I get everybody -- I think I got everybody. Okay. To my right you know Ken Allen, our Chief Financial Officer; Tom Zais, our Vice President of Ready Mix; Ronnie Pruitt, our Vice President in the Cement Production. To the far left, Steve Mayfield, our Vice President of Cement and Aggregate Sales and Marketing. Ed Gerik is our Vice President of Aggregates. And then, of course, Jamie Rogers, our Chief Operating Officer.

So as we dive in to the presentation, I need to warn you, we're playing with some new technology though, so it may be a little quirky, and just deal with it. We will find a way tomorrow to post the information that you see. Okay, and Linda will be able to help you tomorrow understand where that's at, so the detailed information we'll be able to provide tomorrow. And the only other thing I think I need to cover before I dive in is you notice the weather is a little bit challenging, I think the odds move more in our favor as we hit closer to noon, and the chance of rain is less than 50%. Whatever we get, we're just going to do the best we can, right? And if it doesn't -- if we don't get to do everything, you just have to come back and see us.

All right. We want to talk about TXI today. And by the -- I'm going to do kind of the soft-plus style [ph], all the detailed, substantive part of the presentation, Jamie has the good portion to that. So I'm going to talk about TXI and how TXI fits in into the world. And when you see this view, it looks pretty clean, pretty pristine, looks like a lot of water and a lot of raw land, right? But the reality is we've been building upon this land, and at the heart of it all is concrete. All of these structures require-- are built upon concrete. And if you want to therefore think about what TXI is all about, we are about providing the foundations in some form that our slice of the world is built upon.

Concrete is the most ubiquitous material that's used on the planet that's man made. The most used man-made product. So when you think about concrete and its end markets, you've heard us talk about this before, but half of the end market for concrete is infrastructure. Half -- oops, 25% is residential, and 25% is commercial.

Let's talk about what concrete is. For every cubic yard of concrete, it contains about 2/10 of a ton of cement, 1 ton of coarse aggregates, on average about 6/10 of 1 ton of sand. You add some water, and then somebody decided to be absolutely precise, there's a little bit of air that gets into the product as well, right? So when you think about cement, which we're going to see today, cement obviously is a very capital-intensive business. Aggregates too is capital intensive, not near as much so as cement [indiscernible]. But one of the things you will notice in all the pictures I just showed you is you didn't see any skyscrapers in the background, all right? These production facilities, these critical raw materials that make up concrete are produced outside of the large metropolitan cities, where the concrete is needed. And so one of the critical aspects of our business that we talk a lot about is getting the product to market. Transportation is a big deal. Proximity to market, therefore, is a big deal. It happens by truck, it happens by rail, and is load out at Hunter today. Then again it all comes together in ready-mix. I thought about taking this picture out, but we want to see the orange truck that Mel talked about. Very important to understand, therefore, that the distribution of our product is also a critical, critical element.

And with that I'm going to turn it over to James.

James B. Rogers

Thank you, Les. Welcome again to sunny Texas. I hope your forecast is right as we get closer to noon. We're going to discuss a little bit. So we've gone from the world, and we're now going to drill down a little bit into the U.S., and then we're going to drill specifically into 3 or 4 of our core local markets.

And so one thing that, I guess, I'd like you all to leave with today, the point I want you to take away is that local markets matter. And we'll start with the world. We'll talk about some U.S. stats, we'll talk about some Texas stats. Really, when it gets down to our products, demand for our products each market is different, and they're very local. They're very local in nature. Austin is different from Dallas, Dallas is different from Tyler, Tyler is different from Houston, et cetera.

But it really comes down to -- in these local markets. It's a pretty big local market there. It comes down to 2 things, population growth and jobs. And then there's a proxy for housing. Our primary markets, large markets of Texas and California, are growing, have been growing. And we got some other stats as we go forward. And they're also adding jobs. This specific slide actually is talking about construction jobs, and you can see Texas and California leading the pack in the year-over-year growth of that's 7% and 5%, respectively.

So we hear about housing, we hear about the housing rebound. Housing, I just mentioned, we'll talk about it more, it's a very good proxy for demand for our products. Hard to see, but you're all aware, there has been a rebound in housing. And we're now up to -- last year, up to about 700,000 starts. We're projected to grow further this year. Texas has similar dynamics. It's a local market but similar dynamics.

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