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Article by DailyStocks_admin    (12-30-08 05:40 AM)

Filed with the SEC from Dec 18 to Dec 24:

Texas Industries (TXI)
Southeastern Asset Mgmt. lowered its stake to 2,620,280 shares (9.5%), after selling 791,037 from Dec. 8 to 19 at $34.93 to $36.67 each. Southeastern is talking with TXI management about increasing shareholder value and will also consult third parties.

BUSINESS OVERVIEW

General

We are a leading supplier of heavy construction materials in the United States through our three business segments: cement, aggregates and consumer products. Our cement segment produces gray portland cement and specialty cements. Our cement production and distribution facilities are concentrated primarily in Texas and California, the two largest cement markets in the United States. Based on production capacity, we are the largest producer of cement in Texas with a 30% share in that state. Our aggregates segment produces natural aggregates, including sand, gravel and crushed limestone, and specialty lightweight aggregates. Our consumer products segment produces primarily ready-mix concrete and, to a lesser extent, packaged products. We are a major supplier of natural aggregates and ready-mix concrete in Texas and northern Louisiana and, to a lesser extent, in Oklahoma and Arkansas. For financial information about our business segments, see note entitled “Business Segments” in the Notes to Consolidated Financial Statements in Item 8 of this Report.

As of May 31, 2008, we operated 85 manufacturing facilities in six states. In fiscal year 2008, our business had net sales of $1.0 billion, of which 40.4% was generated by our cement segment, 24.1% by our aggregates segment, and 35.5% by our consumer products segment. During the year, we shipped 5.0 million tons of finished cement, 21.9 million tons of natural aggregates, 1.6 million cubic yards of lightweight aggregates and 3.8 million cubic yards of ready-mix concrete.

Our revenue is derived from multiple end-use markets, including the public works, residential, commercial, retail, industrial and institutional construction sectors, as well as the energy industry. Our diversified mix of products provides access to this broad range of end-user markets and helps mitigate the exposure to cyclical downturns in any one product or end-user market. No one customer accounted for more than 10% of our total net sales in fiscal year 2008.

In May 2008 we completed our expanded and modernized Oro Grande, California cement plant at a total project cost of approximately $427 million, excluding capitalized interest related to the project. The plant is an advanced dry process facility designed to efficiently produce approximately 2.3 million tons of cement annually. We have retired the 1.3 million tons of existing, but less efficient, production capacity. As a result of the increase in capacity, we expect to become the second largest producer of cement in southern California.

In October 2007 we commenced construction on a project to expand our Hunter, Texas cement plant. We plan to expand the Hunter plant by approximately 1.4 million tons of advanced dry process annual cement production capacity. The 900,000 tons of existing production will remain in operation. When completed, the Hunter plant will be a modern, low cost facility, similar to our Midlothian and Oro Grande dry process facilities, and we will be well positioned to cost-effectively supply the southern and central Texas market. We currently expect to begin the startup and commissioning process in the winter of fiscal year 2010. The projected cost of the plant expansion is approximately $325 million to $350 million, excluding capitalized interest related to the project.

We expect our capital expenditures in fiscal year 2009 to be approximately $300 million to $325 million, which includes those related to our Hunter cement plant expansion.

Discontinued Operations—Spin-off of Steel Subsidiary

On July 29, 2005, we spun off 100% of Chaparral Steel Company, our steel manufacturing subsidiary, to our stockholders in a pro-rata, tax-free dividend of one share of Chaparral common stock for each share of our common stock. In connection with the spin-off, we issued $250 million principal amount of our 7.25% senior unsecured notes due 2013, entered into a new $200 million senior secured revolving credit facility, terminated our then existing senior credit facility and purchased for cash all of our then outstanding $600 million principal amount of 10.25% senior notes due 2011. See note entitled “Discontinued Operations” in the Notes to Consolidated Financial Statements in Item 8 of this Report.

We have reported the historical results of our steel operations as discontinued operations in our financial statements. Because we no longer own any interest in Chaparral or its steel operations, we have omitted any discussion of the steel operations from this Item 1.

Our Competitive Strengths and Strategies

We believe the following competitive strengths and strategies are key to our ability to grow and compete successfully:

Leading Market Positions. We strive to be a major supplier in markets that have attractive characteristics, such as large market size, above average long-term projected population growth, strong economic activity and a year-round building season. We are the largest producer of cement in Texas (with a 30% share of total production capacity in that state). Now that we have completed our Oro Grande cement plant expansion, we expect to become the second largest producer of cement in southern California. We believe we are also the largest supplier of expanded shale and clay specialty aggregate products west of the Mississippi River, the second largest supplier of stone, sand and gravel natural aggregate products in North Texas, one of the largest suppliers of ready-mix concrete in North Texas and one of the largest suppliers of sand and gravel aggregate products and ready-mix concrete in northern Louisiana. We believe our leadership in these markets enhances our competitive position.

Low Cost Supplier. We strive to be a low cost supplier in our markets. We believe we have some of the lowest operating costs in the cement and aggregate industries. We focus on optimizing the use of our equipment, enhancing our productivity and exploring new technologies to further improve our unit cost of production at each of our facilities. Our low operating costs are primarily a result of our efficient plant designs, high productivity rate and innovative manufacturing processes.

Strategic Locations and Markets. The strategic locations of our facilities near our customer base and sources of raw materials allow us to access the largest cement consuming markets in the United States. Our cement manufacturing facilities are located in California and Texas, the two largest U.S. cement markets. During calendar year 2007, California and Texas accounted for approximately 14.0 million and 16.6 million tons, respectively, of cement consumption or approximately 11% and 13%, respectively, of total U.S. cement consumption. California and Texas have also been the largest beneficiaries of federal transportation funding during the last several years. Funds distributed under multi-year federal highway legislation historically have comprised a majority of California and Texas’ public works spending.

Diversified Product Mix and Broad Range of End-User Markets. Our revenue streams are derived from multiple end-user markets, including the public works, residential, commercial, retail, industrial and institutional construction sectors, as well as the energy industry. Accordingly, we have a broad and diverse customer base. Our diversified mix of products provides access to this broad range of end-user markets and helps mitigate the exposure to cyclical downturns in any one product or end-user market. No one customer accounted for more than 10% of our net sales in fiscal year 2008.

Long-Standing Customer Relationships. We have established a solid base of long-standing customer relationships. For example, our ten largest customers during fiscal year 2008 have done business with us for an average of over 12 years. We strive to achieve customer loyalty by delivering superior customer service and maintaining an experienced sales force with in-depth market knowledge. We believe our long-standing relationships and our leading market positions help to provide additional stability to our operating performance and make us a preferred supplier.

Experienced Management Team. Mel Brekhus, our chief executive officer, Ken Allen, who will become our chief financial officer on August 1, 2008, and the vice presidents responsible for the cement, aggregates and consumer products segments have an average of 26 years of industry experience. Our management team has led our company through several industry cycles and has demonstrated the ability to successfully complete and operate major expansion projects.

Products

Cement Segment

Our cement segment produces gray portland cement as its principal product. We also produce specialty cements such as masonry and oil well cements.

Our cement production facilities are located at three sites in Texas and California: Midlothian, Texas, south of Dallas/ Fort Worth, the largest cement plant in Texas; Hunter, Texas, south of Austin; and Oro Grande, California, near Los Angeles. The limestone reserves used as the primary raw material are located on property we own adjacent to each of the plants. We have idled the white cement production facility at our Crestmore, California plant, but this facility continues to produce cement from clinker manufactured at our Oro Grande plant and to operate a packaging plant.

We use, under license, the patented CemStar SM process in both of our Texas facilities and our Oro Grande, California facility to increase combined annual production of cement clinker by up to 6%. The CemStar SM process adds “slag”, a co-product of steel-making, into a cement kiln along with the regular raw material feed. The slag serves to increase the production of clinker with little additional cost. We originally developed and patented the CemStar SM process. We have sold the U.S. and Canadian patents to a third party, retaining a license to use the process. We continue to receive royalty payments from our original licensees, and have retained our right to license users under other foreign CemStar SM patents.

The primary fuel source for all of our facilities is coal; however, we currently displace approximately 13% of our coal needs at our Midlothian plant and approximately 1% of our coal needs at our Hunter plant by utilizing alternative fuels such as waste-derived fuels and tires. Our facilities also consume large amounts of electricity. We believe that adequate supplies of both fuel and electricity are generally available.

We produced approximately 4.9 million tons of finished cement in fiscal year 2008. Total shipments of finished cement were approximately 5.0 million tons in fiscal year 2008, of which 4.1 million tons in fiscal year 2008 were shipped to outside trade customers. The difference between production and shipments of cement is cement we purchased from third parties. At May 31, 2008, our backlog was approximately 778,000 tons, approximately 278,500 tons of which we do not expect to fill in fiscal year 2009. At May 31, 2007, our backlog was approximately 744,000 tons.

We market our cement products in the southwestern United States. Our principal marketing area includes the states of Texas, Louisiana, Oklahoma, California, Nevada and Arizona. Sales offices are maintained throughout the marketing area and sales are made primarily to numerous customers in the construction industry, no one of which would be considered significant to our business.

Cement is distributed by rail or truck to eight distribution terminals located throughout the marketing area.

CEO BACKGROUND

Sam Coats 67 Business and aviation consultant since March 2006; President and Chief Executive Officer of Schlotzsky’s, Inc. (fast casual dining restaurants) and S.I. Restructuring, Inc. from June 2004 until March 2006 (Schlotzsky’s, Inc. hired Mr. Coats to restructure the company and, as a part thereof, it filed under chapter 11 of the Bankruptcy Code in August 2004); business and aviation consultant from January 2002 until June 2004; President and Chief Executive Officer of Sammons Travel Group (package tour operator) from July 2000 until June 2001; prior to July 2000, served in various positions, including as chief executive officer, of two airlines and an airline management software company; director of Safety-Kleen, Inc. 2005 2011

Thomas R. Ransdell 66 Managed private investments since July 2004; served in various management positions with Vulcan Materials Company (largest domestic producer of aggregates) from 1978 until 2004, most recently as President of the Southwest Division; director of Cancer Therapy and Research Center Foundation 2005 20

Mel G. Brekhus 59 President and Chief Executive Officer of the Company since June 1, 2004; Executive Vice President-Cement, Aggregate and Concrete of the Company from 1998 until June 2004 2004 2010

Gordon E. Forward 72 Chairman Emeritus of United States Council for Sustainable Development (non-profit association of businesses), Austin, Texas, since December 2002; managed private investments since 2001; Vice Chairman of the Board of Directors of the Company from July 1998 through May 2000; President and Chief Executive Officer of Chaparral Steel Company (at the time, a subsidiary of the Company), Midlothian, Texas from 1982 until July 1998; director of Norbord Inc. 1991 2009

Keith W. Hughes 62 Management consultant to domestic and international financial institutions since April 2001; Vice Chairman of Citigroup Inc. (commercial banking), New York, New York from November 2000 to April 2001; Chairman and Chief Executive Officer of Associates First Capital Corporation (consumer and commercial finance), Dallas, Texas from February 1995 through November 2000; director of Fidelity National Information Services, Inc. and Pilgrim’s Pride Corporation 2003 2009

Henry H. Mauz, Jr. 72 Admiral U.S. Navy (Ret.); Member of Advisory Board of Northrop Grumman Ship Systems (shipbuilding), Pascagoula, Mississippi; past President of Naval Postgraduate School Foundation, Inc. (non-profit organization for enhancement of Naval Postgraduate School), Monterey, California; director of Con-way Inc. and CoalStar Industries, Inc. 2003 2009

Robert D. Rogers 72 Chairman of the Board of the Company since October 2004; President and Chief Executive Officer of the Company from 1970 until May 31, 2004; director of Con-way Inc. and Adams Golf, Inc. 1970 2010

Ronald G. Steinhart 68 Chairman and Chief Executive Officer of the Commercial Banking Group of Bank One Corporation from December 1996 until his retirement in January 2000; prior thereto, he served in various executive positions, including as Chief Executive Officer, of several banking institutions; current director of Penske Automotive Group, Inc. and Animal Health International, Inc. and a trustee of the MFS/Compass Group of mutual funds 2007 2010

MANAGEMENT DISCUSSION FROM LATEST 10K

GENERAL

We are a leading supplier of heavy construction materials in the United States through our three business segments: cement, aggregates and consumer products. Our principal products are gray portland cement, produced and sold through our cement segment; stone, sand and gravel, produced and sold through our aggregates segment; and ready-mix concrete, produced and sold through our consumer products segment. Other products include expanded shale and clay aggregates, produced and sold through our aggregates segment, and packaged concrete and related products, produced and sold through our consumer products segment.

Our facilities are concentrated primarily in Texas, Louisiana and California. In May 2008, we completed construction on a project to expand and modernize our Oro Grande, California cement plant at a total project cost of approximately $427 million, excluding capitalized interest related to the project. We constructed approximately 2.3 million tons of advanced dry process annual cement production capacity, and retired the 1.3 million tons of existing, but less efficient, production.

In October 2007, we commenced construction on a project to expand our Hunter, Texas cement plant. We are expanding the Hunter plant by approximately 1.4 million tons of advanced dry process annual cement production capacity. The 900,000 tons of existing production will remain in operation. We currently expect the Hunter project will cost from $325 million to $350 million, excluding capitalized interest related to the project. We currently expect to begin the startup and commissioning process during the winter of fiscal year 2010.

We own long-term reserves of the primary raw materials for the production of cement and aggregates. Our business requires large amounts of capital investment, energy, labor and maintenance. Our corporate administrative, financial, legal, environmental, human resources and real estate activities are not allocated to operations and are excluded from operating profit.

On July 29, 2005, we spun off 100% of Chaparral Steel Company, our steel manufacturing subsidiary, to our stockholders in a pro-rata, tax-free dividend of one share of Chaparral common stock for each share of our common stock. We have reported the historical results of our steel operations as discontinued operations in our financial statements. See note entitled “Discontinued Operations” in the Notes to Consolidated Financial Statements in Item 8 of this Report. Because we no longer own any interest in Chaparral or its steel operations, we have omitted any discussion of the steel operations from our Discussion and Analysis of Financial Condition and Results of Operations.

RESULTS OF OPERATIONS

Fiscal Year 2008 Compared to Fiscal Year 2007

Gross profit for fiscal year 2008 was $193.8 million, a decrease of $42.3 million from the prior fiscal year. Average prices for our stone, sand and gravel improved. Average prices and volumes for our ready-mix concrete products improved. These improvements were offset by production inefficiencies at our old Oro Grande, California cement plant and higher maintenance costs in our cement operations and higher fuel and transportation costs in all of our operations.

Sales. Net sales for fiscal year 2008 were $1,028.9 million, an increase of $32.6 million from the prior fiscal year. Total cement sales decreased $13.7 million on 2% lower average prices and 1% lower shipments. Total stone, sand and gravel sales increased $7.0 million on 6% higher average prices and 1% lower shipments. Total ready-mix concrete sales increased $32.6 million on 7% higher average prices and 5% higher volumes.

Our Texas market area accounted for approximately 82% of our net sales in fiscal year 2008 and 78% of our net sales in fiscal year 2007. Average prices and shipments for our major products in our Texas market area were either comparable or higher than the prior fiscal year. The decline in overall average prices for cement from the prior year is due primarily to a shift in the mix of cement products and markets.

Cost of Products Sold. Cost of products sold for fiscal year 2008 was $835.0 million, an increase of $74.9 million from the prior fiscal year. Cement unit costs increased 12% primarily as a result of the production inefficiencies at our old Oro Grande, California cement plant and higher maintenance, fuel and transportation costs. Energy costs representing 34% of total cement unit costs and maintenance representing 25% of total cement unit costs increased 8% and 27%, respectively. Stone, sand and gravel overall unit costs increased 9% primarily as a result of higher fuel and transportation costs. Ready-mix concrete unit costs increased 6% primarily as a result of higher raw material costs, as well as higher distribution and transportation costs.

Selling, General and Administrative. Selling, general and administrative expense for fiscal year 2008 was $96.2 million, a decrease of $11.9 million from the prior fiscal year. Operating selling, general and administrative expense for fiscal year 2008 was $62.3 million, a decrease of $600,000 from the prior fiscal year. The decrease was primarily the result of $5.9 million lower incentive compensation expense offset in part by $1.2 million higher wages and benefits, $1.5 million higher insurance expense, $900,000 higher provisions for bad debts and $1.6 million higher general expenses. Corporate selling, general and administrative expense for fiscal year 2008 was $33.9 million, a decrease of $11.3 million from the prior fiscal year. The decrease was primarily the result of $2.9 million lower incentive compensation expense and $11.8 million lower stock-based compensation, offset in part by $3.5 million higher retirement expense. Our incentive plans are based on financial performance. Our stock-based compensation includes awards expected to be settled in cash the expense for which is based on the average stock price at the end of each period until the awards are paid. The impact of changes in our stock price during 2008 reduced stock-based compensation $12.5 million. The increase in retirement expense in 2008 was primarily the result of recognized actuarial losses related to our defined benefit plans and increased contributions to our defined contribution plans.

Other Income. Other income for fiscal year 2008 was $31.6 million, a decrease of $5.0 million from the prior fiscal year. Operating other income for fiscal year 2008 was $27.7 million, a decrease of $800,000 from the prior fiscal year. Operating other income in fiscal year 2008 includes gains of $15.2 million from sales of property associated with our aggregate operations in south Louisiana and north Texas. In addition, operating other income includes a gain of $3.9 million from the sale of emissions credits associated with our California cement operations. Operating other income in the prior fiscal year includes $19.8 million representing distributions which we received pursuant to agreements that settled a 16-year dispute over the U.S. antidumping duty order on cement imports from Mexico. Corporate other income for fiscal year 2008 was $3.9 million, a decrease of $4.2 million from the prior fiscal year. The decrease was primarily the result of $3.7 million lower interest income and $600,000 lower real estate income in fiscal year 2008.

Fiscal Year 2007 Compared to Fiscal Year 2006

Gross profit for fiscal year 2007 was $236.1 million, an increase of $59.1 million from the prior fiscal year, primarily as a result of improved pricing and lower cement unit costs.

Sales. Net sales for fiscal year 2007 were $996.3 million, an increase of $52.4 million from the prior fiscal year. Total cement sales increased $34.8 million on 9% higher average prices and 1% lower shipments. Total stone, sand and gravel sales increased $2.1 million on 16% higher average prices and 12% lower shipments. Total ready-mix concrete sales increased $12.8 million on 10% higher average prices and 4% lower volumes.

Adverse weather in the second half of fiscal year 2007 reduced shipments of all of our major products in our north Texas market area. In addition, stone, sand and gravel shipments were lower due to the expiration of a low margin, large supply contract at the beginning of our fiscal year. Average prices for our major products have continued to improve. Market conditions have continued to support our current level of pricing.

Cost of Products Sold. Cost of products sold for fiscal year 2007 was $760.2 million, a decrease of $6.7 million from the prior fiscal year. Cement unit costs decreased 1%. Energy costs representing 35% of total cement unit costs decreased 8%. Stone, sand and gravel unit costs increased 8% primarily as a result of the effect on overall unit costs of lower productivity caused by the adverse weather conditions in north Texas and reduced shipments. Energy and maintenance costs representing 41% of stone, sand and gravel unit costs increased 20% and 12%, respectively. Ready-mix concrete unit costs increased 6% primarily as a result of higher cement and aggregate raw material costs.

Selling, General and Administrative. Selling, general and administrative expense for fiscal year 2007 was $108.1 million, an increase of $19.4 million from the prior fiscal year. Operating selling, general and administrative expense for fiscal year 2007 was $62.9 million, an increase of $13.3 million from the prior fiscal year. The increase was primarily the result of $3.6 million higher incentive compensation expense, $1.5 million higher wages and benefits, $1.6 million higher stock-based compensation and $2.4 million higher insurance expense. Corporate selling, general and administrative expense for fiscal year 2007 was $45.2 million, an increase of $6.1 million from the prior fiscal year. The increase was primarily the result of $4.5 million higher incentive compensation expense and $7.9 million higher stock-based compensation, offset in part by $3.8 million lower insurance expense and $2.6 million lower general expenses. Our incentive plans are based on financial performance. Stock-based compensation for fiscal year 2007 includes compensation expense related to stock options in the amount of $3.6 million as a result of our adoption, effective June 1, 2006, of SFAS No. 123R, “Share-Based Payment.”

Other Income. Other income for fiscal year 2007 was $36.6 million, a decrease of $10.6 million from the prior fiscal year. Operating other income for fiscal year 2007 was $28.5 million, a decrease of $3.5 million from the prior fiscal year. Operating other income in fiscal year 2007 includes $19.8 million representing distributions which we received pursuant to agreements that settled a 16-year dispute over the U.S. antidumping duty order on cement imports from Mexico. Operating other income in the prior fiscal year includes a gain of $24.0 million from the sale of real estate associated with our expanded shale and clay aggregate operations in south Texas. Corporate other income for fiscal year 2007 was $8.1 million, a decrease of $7.1 million from the prior fiscal year. The decrease was primarily the result of $3.2 million lower income from real estate and surplus corporate asset sales in fiscal year 2007 and a $3.8 million gain from the sale of an investment in the prior fiscal year.

Interest Expense

Interest expense for fiscal year 2008 was $2.5 million, a decrease of $11.6 million from the prior fiscal year. Interest capitalized in connection with our Oro Grande, California and Hunter, Texas cement plant expansion projects reduced the amount of interest expense recognized by $26.5 million in fiscal year 2008 and $12.9 million in the prior fiscal year. An additional $28.1 million in interest expense is currently estimated to be capitalized in connection with our Hunter expansion project. We expect to begin the startup and commissioning process during the winter of fiscal year 2010.

During fiscal year 2008, borrowings under our $200 million senior revolving credit facility, new $150 million senior term loan and life insurance contracts increased interest expense $8.1 million. During fiscal year 2007, all of our outstanding 5.5% convertible subordinated debentures due June 30, 2028, totaling $159.7 million at May 31, 2006, were converted or redeemed. The conversion and redemptions reduced interest expense $6.7 million in 2008 and $4.4 million in 2007 from the prior fiscal years. Also contributing to lower interest expense in fiscal year 2007 was prior year debt refinancing in connection with the spin-off of Chaparral Steel Company.

Loss on Early Retirement of Debt

Loss on debt retirements and spin-off charges for fiscal year 2006 includes a loss of $107.0 million related to the early retirement of our 10.25% senior notes and former credit facility, consisting of $96.0 million in premiums and consent payments plus transaction costs, and a write-off of $11.0 million of debt issuance costs and interest rate swap gains and losses associated with the debt purchased. We also incurred expense of $800,000 related to the May 2006 conversion of $40.2 million of convertible subordinated debentures. In addition, we incurred $5.4 million in charges related to the spin-off of Chaparral in July 2005.

Income Taxes

Our effective tax rate for continuing operations was 31.0% in 2008, 32.9% in 2007 and 93.3% in 2006. The primary reason that the effective tax rate differed from the 35% statutory corporate rate was due to additional percentage depletion that is tax deductible, the deduction for qualified domestic production activities in 2008 and 2007, offset in part by state income taxes and nondeductible stock compensation and, in 2006, spin-off and debt conversion costs that are not tax deductible. The effective rate for discontinued operations was 35.1% in 2006.

The American Jobs Creation Act of 2004, among other things, allows a deduction for income from qualified domestic production activities, which will be phased in from 2005 through 2010. We realized a benefit of $1.2 million in 2008 and $1.1 million in 2007 but did not realize a benefit in 2006 because of a taxable loss for the year.

Effective June 1, 2007, we adopted Financial Accounting Standards Board Interpretation 48, “Accounting for Uncertainty in Income Taxes.” This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes” and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We have no significant reserves for uncertain tax positions and no adjustments to such reserves were required upon adoption of this interpretation. Interest and penalties resulting from audits by tax authorities have been immaterial and are included in income tax expense in the consolidated statements of operations.

In addition to our federal income tax return, we file income tax returns in various state jurisdictions. We are no longer subject to federal or state income tax examinations by tax authorities for years prior to 2004. Our federal income tax returns for 2004 through 2006 are currently under examination. We anticipate that the examination will be completed in fiscal year 2009, and that any adjustments that may result from this examination would not have a material effect on our financial position or results of operations.

Income from Discontinued Operations—Net of Income Taxes

As a result of the spin-off of Chaparral, the operating results of our steel segment, including the allocation of certain corporate expenses, have been presented as discontinued operations. Fiscal year 2006 includes steel operations through the July 29, 2005 spin-off date.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements and accompanying notes in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Changes in the facts and circumstances could have a significant impact on the resulting financial statements. We believe the following critical accounting policies affect management’s more complex judgments and estimates.

Receivables. Management evaluates the ability to collect accounts receivable based on a combination of factors. A reserve for doubtful accounts is maintained based on the length of time receivables are past due or the status of a customer’s financial condition. If we are aware of a specific customer’s inability to make required payments, specific amounts are added to the reserve.

Environmental Liabilities. We are subject to environmental laws and regulations established by federal, state and local authorities, and make provision for the estimated costs related to compliance when it is probable that a reasonably estimable liability has been incurred.

Legal Contingencies. We are defendants in lawsuits which arose in the normal course of business, and make provision for the estimated loss from any claim or legal proceeding when it is probable that a reasonably estimable liability has been incurred.

Long-lived Assets. Management reviews long-lived assets for impairment whenever changes in circumstances indicate that the carrying amount of the assets may not be recoverable and would record an impairment charge if necessary. Such evaluations compare the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset and are significantly impacted by estimates of future prices for our products, capital needs, economic trends and other factors.

Goodwill. Management tests goodwill for impairment at least annually. If the carrying amount of the goodwill exceeds its fair value, an impairment loss is recognized. In applying a fair-value-based test, estimates are made of the expected future cash flows to be derived from the applicable reporting unit. Similar to the review for impairment of other long-lived assets, the resulting fair value determination is significantly impacted by estimates of future prices for our products, capital needs, economic trends and other factors.

RECENT ACCOUNTING DEVELOPMENTS

In March 2008, the Financial Accounting Standards Board issued SFAS No.161, “Disclosures about Derivative Instruments and Hedging Activities—An Amendment of FASB Statement No. 133.” This standard applies to derivative instruments, nonderivative instruments that are designated and qualify as hedging instruments and related hedged items accounted for under SFAS No. 133. It does not change the accounting for derivatives and hedging activities, but requires enhanced disclosures concerning the effect on the financial statements from their use. This SFAS is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Currently, we do not have any instruments that would be impacted by this standard.

In December 2007, the Financial Accounting Standards Board issued SFAS No. 141 (revised 2007), “Business Combinations.” This standard amends the principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. It also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. This SFAS is effective for us beginning June 1, 2009, and we will apply it prospectively to all business combinations subsequent to the effective date.

In December 2007, the Financial Accounting Standards Board issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51.” This standard establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also establishes disclosure requirements that clearly identify and distinguish between the controlling and noncontrolling interest and requires the separate disclosure of income attributable to controlling and noncontrolling interests. This SFAS is effective for us beginning June 1, 2009. We do not expect that the adoption of SFAS No. 160 will have a material impact on our consolidated financial statements.

In February 2007, the Financial Accounting Standards Board issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115.” This standard permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. This SFAS is effective for us on June 1, 2008. At this time, we do not anticipate electing to use the fair value measures permitted by this standard.

In September 2006, the Financial Accounting Standards Board issued SFAS No. 157, “Fair Value Measurements.” This standard defines fair value, establishes a framework for measuring fair value and expands disclosure requirements about fair value measurements. This SFAS is effective for us beginning June 1, 2008. We do not expect that the adoption of SFAS No. 157 will have a current material impact on our consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

During 2008, to improve liquidity and provide more financial and operating flexibility, we entered into a term credit agreement that provided for an unsecured $150 million senior term loan maturing through August 15, 2012. In addition, we elected to receive $103.9 million in distributions and policy surrenders from life insurance contracts purchased in connection with certain of our benefit plans. These distributions represent substantially all the distributions available to us.

In addition to cash and cash equivalents of $39.5 million at May 31, 2008, our sources of liquidity include cash from operations and borrowings available under our $200 million senior revolving credit facility.

Senior Revolving Credit Facility. On August 15, 2007, we amended and restated our June 30, 2005 credit agreement. The amended and restated credit agreement continues to provide for a $200 million senior revolving credit facility, but the credit facility is no longer secured and the principal amount may be increased by up to an additional $100 million at our option, provided that the lenders that are parties to the amended and restated credit agreement and such additional lenders as are invited by us and approved by the administrative agent provide commitments for the additional principal amount. The credit facility expires on August 15, 2012. It includes a $50 million sub-limit for letters of credit. Any outstanding letters of credit are deducted from the borrowing availability under the facility. No borrowings were outstanding at May 31, 2008; however, $26.0 million of the facility was utilized to support letters of credit. Amounts drawn under the facility bear interest either at the LIBOR rate plus a margin of .75% to 2%, or at a base rate (which is the higher of the federal funds rate plus 0.5% and the prime rate) plus a margin of up to 1%. The interest rate margins are subject to adjustments based on our leverage ratio. Commitment fees are payable currently at an annual rate of .25% on the unused portion of the facility. All of our consolidated subsidiaries have guaranteed our obligations under the credit facility. We may terminate the facility at any time.

The credit facility contains covenants restricting, among other things, prepayment or redemption of the senior notes, distributions, dividends and repurchases of capital stock and other equity interests, acquisitions and investments, indebtedness, liens and affiliate transactions. We are required to comply with certain financial tests and to maintain certain financial ratios, such as leverage and interest coverage ratios. We were in compliance with all of these loan covenants as of May 31, 2008.

Term Credit Agreement. On March 20, 2008, we entered into a term credit agreement that provided for an unsecured $150 million senior term loan maturing through August 15, 2012. The net proceeds were used to repay borrowings outstanding under our senior revolving credit facility in the amount of $85 million, with the additional proceeds available for general corporate purposes. The outstanding principal amount of the term loan bears interest either at LIBOR rate plus a margin of 2.25% to 2.50% or at a base rate (which will be the higher of the federal funds rate plus 0.5% and the prime rate) plus a margin of 1.25% to 1.50%. The interest rate margins are based on our leverage ratio. We may repay the term loan at any time without penalty. We must mandatorily prepay the term loan in the amount of the net cash proceeds from issuances of any additional senior notes or from certain asset sales. All of our consolidated subsidiaries have guaranteed our obligations under the term credit agreement.

Similar to our senior revolving credit agreement, the term credit agreement contains a number of negative covenants restricting, among other things, prepayment or redemption of the senior notes, distributions and dividends on and repurchases of capital stock and other equity interests, acquisitions and investments, indebtedness, liens and affiliate transactions. We are required to comply with certain financial tests and to maintain certain financial ratios, such as leverage and interest coverage ratios. We were in compliance with all of these loan covenants as of May 31, 2008.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

RESULTS OF OPERATIONS

We are a leading supplier of heavy construction materials in the United States through three business segments: cement, aggregates and consumer products. Our principal products are gray portland cement, produced and sold through our cement segment; stone, sand and gravel, produced and sold through our aggregates segment; and ready-mix concrete, produced and sold through our consumer products segment. Other products include expanded shale and clay lightweight aggregates, produced and sold through our aggregates segment, and packaged concrete mix, mortar, sand and related products, produced and sold through our consumer products segment. Our facilities are concentrated primarily in Texas, Louisiana and California.

Management uses segment operating profit as its principal measure to assess performance and to allocate resources. Business segment operating profit consists of net sales less operating costs and expenses that are directly attributable to the segment. Unallocated overhead and other income includes income and operating overhead expenses such as environmental, engineering and other administrative activities that directly relate to some or all of our segments and are not allocated. Corporate includes non-operating income and expenses related to administrative, financial, legal, human resources and real estate activities.

Operating profit for the three-month period ended August 31, 2008 was $17.3 million, a decrease of $.5 million from the prior year period.

Total cement sales for the three-month period ended August 31, 2008 decreased $12.0 million from the prior year period on 4% lower average prices and 6% lower shipments. Our Texas market area accounted for approximately 69% of total cement sales in the current period compared to 62% of total cement sales in the prior year period. Average cement prices in our Texas market area increased 1% from the prior year period. The decline in construction activity in our California market area resulted in a decrease in bulk and package cement prices and shipments of 8% and 12%, respectively, from the prior year period.

Cost of sales for the three-month period ended August 31, 2008 decreased $4.6 million from the prior year period primarily due to lower shipments. Cement unit costs were comparable to the prior year period. Higher energy costs at all our plants were offset by lower maintenance costs related to the timing of scheduled maintenance.

Selling, general and administrative expense for the three-month period ended August 31, 2008 decreased $.3 million from the prior year period primarily due to lower incentive compensation expense.

Other income for the three-month period ended August 31, 2008 increased $4.4 million from the prior year period. Other income in the current period includes a lease bonus payment of $2.8 million received upon the execution of an oil and gas lease on property we own in north Texas. In addition, other income in the current period includes a gain of $1.7 million from the sale of emission credits associated with our California cement operations.

Interest

Interest expense incurred for the three-month period ended August 31, 2008 was $9.0 million, of which $1.8 million was capitalized in connection with our Hunter, Texas cement plant expansion project and $7.2 million was expensed. Interest expense incurred for the three-month period ended August 31, 2007 was $6.1 million, all of which was capitalized in connection with our Oro Grande, California cement plant expansion project. Interest expense incurred increased $2.9 million due to higher average outstanding debt and borrowings on life insurance contracts. An additional $26.3 million in interest expense is currently estimated to be capitalized in connection with our Hunter expansion project. We expect to begin the startup and commissioning process during the winter of fiscal year 2010.

Loss on Debt Retirements

On August 18, 2008, we sold $300 million aggregate principal amount of additional 7.25% senior notes due in 2013 at an offering price of $93.25. The net proceeds were used to repay our $150 million senior term loan and borrowings outstanding under our senior revolving credit facility in the amount of $29.5 million. We recognized a loss on debt retirement of $.9 million representing a write-off of debt issuance costs associated with the mandatory prepayment of the term loan.

Income Taxes

Income taxes for the interim periods ended August 31, 2008 and August 31, 2007 have been included in the accompanying financial statements on the basis of an estimated annual rate. The primary reason that the tax rate differs from the 35% federal statutory corporate rate is due to percentage depletion that is tax deductible, state income taxes and deductions for income from qualified domestic production activities. Our estimated effective tax rate for fiscal year 2009 is 30.7% compared to 31.4% for fiscal year 2008.

LIQUIDITY AND CAPITAL RESOURCES

On August 18, 2008, we sold $300 million aggregate principal amount of additional 7.25% senior notes due in 2013 at an offering price of 93.25%. The additional notes were issued under our existing indenture dated July 6, 2005. The net proceeds were used to repay our $150 million senior term loan and borrowings outstanding under our senior revolving credit facility in the amount of $29.5 million, with additional proceeds available for general corporate purposes.

In addition to cash and cash equivalents of $118.5 million at August 31, 2008, our sources of liquidity include cash from operations and borrowings available under our $200 million senior revolving credit facility.

Senior Revolving Credit Facility. Our credit agreement provides for a $200 million senior revolving credit facility. The principal amount may be increased by up to $100 million at our option, provided that the current lenders and such additional lenders as are invited by us and approved by the administrative agent provide commitments for the additional principal amount. The credit facility expires on August 15, 2012. It includes a $50 million sub-limit for letters of credit. Any outstanding letters of credit are deducted from the borrowing availability under the facility. No borrowings were outstanding at August 31, 2008; however, $26.0 million of the facility was utilized to support letters of credit. Amounts drawn under the facility bear interest either at the LIBOR rate plus a margin of .75% to 2%, or at a base rate (which is the higher of the federal funds rate plus 0.5% and the prime rate) plus a margin of up to 1%. The interest rate margins are subject to adjustments based on our leverage ratio. All of our consolidated subsidiaries have guaranteed our obligations under the credit facility.

The credit facility contains covenants restricting, among other things, prepayment or redemption of the senior notes, distributions, dividends and repurchases of capital stock and other equity interests, acquisitions and investments, indebtedness, liens and affiliate transactions. We are required to comply with certain financial tests and to maintain certain financial ratios, such as leverage and interest coverage ratios. We are in compliance with all of our loan covenants.

In October 2007, we commenced construction on a project to expand our Hunter, Texas cement plant. We are expanding the Hunter plant by approximately 1.4 million tons of advanced dry process annual cement production capacity. The 900,000 tons of existing annual cement production capacity will remain in operation. We currently expect the Hunter project will cost from $325 million to $350 million, excluding estimated capitalized interest of $30 million related to the project. As of August 31, 2008, we have expended $121.2 million, excluding capitalized interest of $3.7 million related to the project. We currently expect to begin the startup and commissioning process during the winter of fiscal year 2010.

In July 2008, we negotiated three contracts for the purchase of coal for use in our cement and expanded shale and clay lightweight aggregate plants in Texas beginning with calendar year 2009. Each contract requires that we must purchase all of our coal requirements at a fixed price (escalated annually) through calendar year 2011. However, these contracts do not require that minimum amounts of material be purchased.

We expect cash and cash equivalents, cash from operations and available borrowings under our senior revolving credit facility to be sufficient to provide funds for capital expenditure commitments currently estimated at $300 million to $325 million for fiscal year 2009 (including the expansion of the Hunter, Texas plant), scheduled debt payments, working capital needs and other general corporate purposes for at least the next year.

Cash Flows

Net cash provided by operating activities for the three-month period ended August 31, 2008 and August 31, 2007 was $10.6 million and $14.1 million, respectively. The decrease was primarily the result of lower income from operations offset in part by higher depreciation due to the completion of our Oro Grande, California cement plant in May 2008.

Net cash used by investing activities for the three-month period ended August 31, 2008 and August 31, 2007 was $59.6 million and $102.7 million, respectively.

Capital expenditures, including capitalized interest, incurred in connection with the expansion of our Hunter, Texas cement plant were $46.7 million and $9.8 million for the three-month periods ended August 31, 2008 and August 31, 2007, respectively. Capital expenditures, including capitalized interest, incurred in connection with the expansion and modernization of our Oro Grande, California cement plant were $1.3 million and $76.4 million for the three-month periods ended August 31, 2008 and August 31, 2007, respectively.

Capital expenditures for normal replacement and technological upgrades of existing equipment and acquisitions to sustain our existing operations were $40.7 million and $17.5 million for the three-month periods ended August 31, 2008 and August 31, 2007, respectively. Capital expenditures in the current period include $25.6 million incurred to acquire aggregate operations in central Texas through a deferred like-kind-exchange transaction. Completion of the transaction reduced the cash designated for property acquisitions that is being held by a qualified intermediary trust by $27.0 million.

Net cash provided by financing activities for the three-month period ended August 31, 2008 and August 31, 2007 was $128.0 million and $78.7 million, respectively.

On August 18, 2008, we sold $300 million aggregate principal amount of additional 7.25% senior notes due in 2013 at an offering price of 93.25%. The net proceeds were used to repay our $150 million senior term loan and borrowings outstanding under our senior revolving credit facility in the amount of $29.5 million.

OTHER ITEMS

Environmental Matters

We are subject to federal, state and local environmental laws, regulations and permits concerning, among other matters, air emissions and wastewater discharge. We intend to comply with these laws, regulations and permits. However, from time to time we receive claims from federal and state environmental regulatory agencies and entities asserting that we are or may be in violation of certain of these laws, regulations and permits, or from private parties alleging that our operations have injured them or their property. See “Item 1. Legal Proceedings” in Part II of this report for a description of certain claims. It is possible that we could be held liable for future charges which might be material but are not currently known or estimable. In addition, changes in federal or state laws, regulations or requirements or discovery of currently unknown conditions could require additional expenditures by us.

Market Risk

Historically, we have not entered into derivatives or other financial instruments for trading or speculative purposes. Because of the short duration of our investments, changes in market interest rates would not have a significant impact on their fair value. The fair value of fixed rate debt will vary as interest rates change.

Our operations require large amounts of energy and are dependent upon energy sources, including electricity and fossil fuels. Prices for energy are subject to market forces largely beyond our control. We have generally not entered into any long-term contracts to satisfy our fuel and electricity needs, with the exception of coal which we purchase from specific mines pursuant to long-term contracts. However, we continually monitor these markets and we may decide in the future to enter into long-term contracts. If we are unable to meet our requirements for fuel and electricity, we may experience interruptions in our production. Price increases or disruption of the supply of these products could adversely affect our results of operations.

Critical Accounting Policies

The preparation of financial statements and accompanying notes in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Changes in the facts and circumstances could have a significant impact on the resulting financial statements. The critical accounting policies that affect the more complex judgments and estimates are described in our Annual Report on Form 10-K for the year ended May 31, 2008.

Recent Accounting Developments

In September 2006, the Financial Accounting Standards Board issued SFAS No. 157, “Fair Value Measurements.” This standard defines fair value, establishes a framework for measuring fair value and expands disclosure requirements about fair value measurements. We adopted this SFAS effective June 1, 2008. The adoption of SFAS No. 157 did not have a current material impact on our consolidated financial statements.

In February 2007, the Financial Accounting Standards Board issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115.” This standard permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. We adopted this SFAS effective June 1, 2008. At this time, we have not elected to use the fair value measures permitted by this standard.

Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the

Private Securities Litigation Reform Act of 1995

Certain statements contained in this quarterly report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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 level of construction activity in our markets, abnormal periods of inclement weather, unexpected periods of equipment downtime, changes in the cost of raw materials, fuel and energy, the impact of environmental laws, regulations and claims, and the risks and uncertainties described in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year-ended May 31, 2008.


CONF CALL

Linda English

I’m Linda English, Manager of Investor Communications, and I have the privilege of introducing our senior management team today: President and CEO Mel Brekhus, Vice President - Finance and CFO Ken Allen. We will follow a similar format as in previous teleconferences. Mel and Ken will first provide comments for the quarter and follow with Q&A.

Before we begin, I’d just like to remind you that certain statements contained in this call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 the impact of competitive pressures and changing economic and financial conditions on our business, the level of construction activity in our markets, abnormal periods of inclement weather, unexpected periods of equipment down time, changes in the cost of raw materials, fuel and energy, and the impact of environmental laws, regulations and claims and risks and uncertainties described more fully in the company’s reports on SEC Forms 10Q, 10K and 8K.

And now for opening comments, Mel please go ahead.

Melvin G. Brekhus

We are currently experiencing a tale of two markets related to TXI’s operations. The Texas economy which is the dominant driver of TXI sales continues to grow and add jobs. Construction in the state also continues to generate a level of cement consumption that significantly exceeds cement production. We have even seen modest cement price appreciation in this state.

Construction activity in California on the other hand continues to decline. We believe demand for cement in the state is less than the capacity to make cement and that we may not have found the bottom of the cycle there. We have recently experienced a decline in realized cement prices in California as well, both as we ship cement further from the plant and as prices have in fact declined.

In Texas the expansion of our Central Texas cement plant continues to make progress with production expected to begin by late calendar 2009 or early 2010. This plant will add 1.4 million tons of new cement-producing capacity to a plant that already makes approximately 900,000 tons of cement very efficiently.

Our efforts to augment counter production from the large kiln at our North Texas cement plant continued to yield results. In fact the kiln set clinker production records during the August quarter. In order to manage clinker inventories and maximize the efficiencies inherent in the large kiln, we have decided to idle the two smaller kilns at the plant until clinker inventory levels are brought back in line.

Turning to California, we are pleased with the new plant’s capabilities but market conditions are not allowing us to operate the plant at capacity. As a result we are not achieving the financial results or efficiencies from the new plant that we expected to achieve under more normal market conditions. What we do have is a plant that should allow us to achieve world class production efficiencies when operating at full capacity. The California market is clearly a different market today but we believe the state will recover and once again become the largest cement market in the US.

It also appears that construction activity in Texas has begun to slow but we believe that the Texas economy’s much better fundamentals will allow it to weather the current economic uncertainty and volatility without such a dramatic decline in construction activity.

With regard to TXI’s other operations, aggregate pricing has continued to show an upward trend. During the quarter TXI acquired sand and gravel assets near Austin that will enhance our ability to serve that attractive long-term market. The action was essentially a redeployment of assets as proceeds from the sale of TXI’s sand and gravel assets in South Louisiana were used to finance the acquisition.

By now you’re probably aware that we have announced significant ready mix concrete price increases in the neighborhood of 25% effective for October 1. TXI is extremely efficient with regard to labor and truck utilization but raw material and transportation costs have risen significantly and price relief is needed in order to attain acceptable returns for this business.

During the quarter TXI attained $300 million in debt financing. The proceeds were used to pay off approximately $180 million in bank debt and the remainder of the net proceeds will be used to finance the Central Texas expansion. The financing is important because it places TXI in a strong position to weather current economic conditions and continue our strategic cement growth initiatives. When the general economy recovers, we plan to be in position to take full advantage of it.

With that I’ll turn it over to Ken.

Kenneth R. Allen

You’ve probably noticed that the earnings release has a different format than past releases. Our objective with this release and earnings releases going forward is to focus on the results of our three business segments: Cement which accounts for the lion’s share of TXI’s earnings, aggregates and also consumer products.

I’ll provide more detail by segment, but first in summary at a consolidated level, net income during the quarter of $10.7 million trailed net income in the same quarter last year of $17.9 million. At the pre-tax line, income declined by just under $11 million. Gross profit among all three segments dropped while selling, general and administration expenses declined due to lower incentive and stock compensation expense. Other income increased primarily due to the bonus received from the execution of an oil and gas lease contract in North Texas. Interest expense primarily increased as capitalized interest related to the California cement plant expansion was no longer incurred.

And with that let’s move on to the results for the quarter and focus on cement. As you can see from the release in the individual profit and loss statement for cement, cement operating profit declined by $0.5 million in the August quarter just ended compared to the same quarter last year.

Total cement shipments declined 6%. Cement shipments in Texas of 876,000 tons were about even with those in last year’s first quarter. Shipments in California actually declined from 410,000 tons in the quarter a year ago to 342,000 tons in this quarter. California shipments in the fourth quarter ended May 31, 2008 totaled 356,000 tons.

We were able to keep shipments fairly stable from the fourth quarter to the first quarter in spite of the scheduled maintenance down time we experienced in June but nevertheless and as Mel has already indicated, it’s clear that the weak construction market in California is not allowing us to take advantage of the additional capacity we brought on line last spring.

Combined average cement prices declined 4% year-over-year. In Texas prices actually increased by 1% compared to a year ago. In California on the other hand realized prices declined by an average of 8% for bulk and packaged cement.

On the cost side, the impact of scheduled maintenance at TXI’s cement plants was actually a plus for the quarter. The California and Central Texas cement plants were down for scheduled maintenance during the August quarter and we estimate that the scheduled maintenance down time for the California plant reduced profit by about $5 million to $6 million while the scheduled maintenance at the Central Texas plant reduced profit by about $6 million as well.

In last year’s quarter, just to give you a comparison, TXI’s North Texas plant was down for scheduled maintenance and had a negative impact on profit of $12 million while the Central Texas plant was down as well at a cost of approximately $3 million to $4 million. So when you compare this quarter versus a year ago, scheduled maintenance costs were actually lower in combination by about $4 million.

With regard to scheduled maintenance at the North Texas plant, the plant is scheduled to be down for maintenance in the quarter ending November 30, the quarter that we’re in right now.

Energy costs for cement particularly in the area of electricity were higher than those of a year ago offsetting the lower costs related to maintenance expense. On average cement electricity costs per kilowatt hour were higher by 35% to 40% compared to a year ago.

Depreciation expense for the segment increased by $3.4 million reflecting the increase in assets related to the new plant in California.

As Mel alluded to earlier, market conditions in California are not allowing us to run the new plant at its full capacity and as a result we are also not able to gain the efficiency improvements as we expected. In last year’s August quarter the older plants with both higher prices and higher shipments did slightly better than break-even at the operating profit line. Now in this year’s quarter, after removing the negative impact of the scheduled maintenance that we’ve already talked about, the new plant was basically at a break-even level as well. We’re disappointed to have such a weak construction market as we bring on the new plant in California, but on the other hand we are really pleased to have the new plant in place rather than the old plant.

Turning to the aggregate operations, operating profit declined by $2.5 million in the quarter compared to a year ago. Realized prices for stone, sand and gravel maintained a positive trend while total shipments were down for stone, sand and gravel primarily because we no longer own the South Louisiana sand and gravel assets. Higher diesel and electricity costs for the stone, sand and gravel operations also accounted for approximately $2 million of the decline in operating profit.

In the consumer product segment which is composed primarily of TXI’s ready-mix concrete operations increased average prices were more than offset by a 5% decline in concrete shipments and also offset by higher raw material and diesel costs. As a result operating profit declined by $4.5 million.

During the quarter TXI entered into an oil and gas lease agreement and received $4.4 million in bonus payments as a result. In the other income line $2.8 million of the $4.4 million went to the North Texas cement plant because most of the property covered in the agreement is located at that plant. While we’re certainly interested in attaining an income stream from natural gas sales that could serve as a natural hedge to our energy costs, any estimate as to the potential impact from this project would be extremely speculative at this time.

Corporate G&A expense declined $3.9 million in the quarter compared to the same period last year, incentive expense dropped $2.4 million, and stock-based compensation expense declined by $2.3 million.

With regard to interest expense now, last year’s interest expense in the first quarter was fully offset by capitalized interest associated with the California cement plant capital project. That project was completed last spring and as a result, capitalized interest in this quarter was only due to the Central Texas expansion which is still in its fairly early stages so capitalized interest is fairly low. As a result, the P&L interest expense number in the income statement was $7.2 million.

Also you can see in the P&L line as a result of financing completed during August $900,000 in unamortized debt expense was also written off.

During the first quarter total capital spending of $89 million included $47 million and that includes capitalized interest for the Central Texas cement plant expansion and it also included $26 million for the acquisition of the sand and gravel assets near Austin, Texas.

Looking at current conditions, as natural gas prices declined from the recent peak this summer we have begun to see our electricity costs decline as well. As we mentioned in the July teleconference we have completed a negotiation of our Texas coal contract for our cement plants in Texas, and beginning January 1, 2009 the cost of coal for TXI’s Texas operations will increase by approximately 40%. We’re still in the process of negotiating the coal contract for the California plant. The current contract out in California will expire in May of 2009.

Again I mentioned earlier that the North Texas plant will be down for scheduled maintenance in the November quarter. In the November quarter last year we had no major planned outages.

With regard to interest expense as we move forward, after the financing accomplished in August we are currently at a quarterly run rate for interest expense before capitalized interest of about $11 million to $12 million a quarter. Capitalized interest in the first quarter of $1.8 million will increase in the November quarter as the accumulative investment in the Central Texas cement plant expansion project builds. Recall again that capitalized interest actually reduces interest expense on the P&L.

These are challenging times in many ways. Just as skyrocketing energy costs began to subside, Hurricane Ike hit the Texas coast and after a period of time here required for the cleanup work to be accomplished, construction in the impacted Texas market should recover. In the meantime construction activity in the areas impacted by Ike will be slower than normal. TXI employees are doing a great job of getting our operations that were impacted by the hurricane back up and running by the way.

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