FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-7159
FLORIDA ROCK INDUSTRIES, INC.
(exact name of registrant as specified in its charter)
Florida 59-0573002
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization) Identification
No.)
155 East 21st Street, Jacksonville, Florida 32206
(Address of principal executive offices)
(Zip Code)
904/355-1781
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of The Exchange Act). Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of January 21, 2004: 43,102,522 shares of $.10 par
value common stock.
FLORIDA ROCK INDUSTRIES, INC.
FORM 10-Q
QUARTER ENDED DECEMBER 31, 2003
CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
Item 4. Controls and Procedures 15
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Exhibit 11. Computation of Earnings Per Common Share 22
Exhibit 31(a)Certification of John D. Baker, II 23
Exhibit 31(b)Certification of John D. Milton, Jr. 24
Exhibit 31(c)Certification of Wallace A. Patzke, Jr. 25
Exhibit 32. Certification under Section 906 of Sarbanes-Oxley Act 26
of 2002
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FLORIDA ROCK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
December 31, September 30,
2003 2003
ASSETS
Current assets:
Cash and cash equivalents $ 38,627 38,135
Accounts receivable, less allowance
for doubtful accounts of $3,371
($3,419 at September 30, 2003) 100,261 106,954
Inventories 33,589 37,079
Current deferred income taxes 2,027 2,530
Prepaid expenses and other 7,681 5,396
Total current assets 182,185 190,094
Other assets 77,879 57,709
Goodwill 148,620 148,573
Property, plant and equipment, at cost:
Land 172,735 180,789
Plant and equipment 784,878 784,367
Construction in process 13,151 7,276
970,764 972,432
Less accumulated depreciation,
depletion and amortization 491,197 482,654
Net property, plant and equipment 479,567 489,778
$ 888,251 886,154
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 41,314 46,557
Dividends payable 7,184 7,187
Federal and state income taxes 6,612 3,600
Accrued payroll and benefits 19,713 21,131
Accrued insurance reserve 8,073 4,924
Accrued liabilities, other 7,331 11,806
Long-term debt due within one year 366 518
Total current liabilities 90,593 95,723
Long-term debt 94,017 118,964
Deferred income taxes 72,331 65,907
Accrued employee benefits 17,800 17,661
Long-term accrued insurance reserves 8,281 8,281
Other accrued liabilities 5,273 5,196
Total liabilities 288,295 311,732
Shareholders' equity:
Preferred stock, no par value; 10,000,000
shares authorized, none issued - -
Common stock, $.10 par value; 50,000,000
shares authorized, 43,102,665 shares issued
(43,078,102 shares at September 30, 2003) 4,310 4,308
Capital in excess of par value 18,633 18,078
Retained earnings 577,013 552,036
Total shareholders' equity 599,956 574,422
$ 888,251 866,154
See accompanying notes.
FLORIDA ROCK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
(Unaudited)
Three Months Ended
December 31,
2003 2002
Net sales $220,308 160,741
Freight revenues 5,084 3,505
Total sales 225,392 164,246
Cost of sales 161,521 124,708
Freight expense 5,068 3,518
Total cost of sales 166,589 128,226
Gross profit 58,803 36,020
Selling, general and administrative 22,218 17,377
Gain on sale of real estate (12,932) -
Operating profit 49,517 18,643
Interest expense (627) (469)
Interest income 288 529
Other income (expense), net 1,021 423
Income before income taxes 50,199 19,126
Provision for income taxes 18,071 6,730
Income before cumulative effect of
accounting change 32,128 12,396
Cumulative effect of accounting
change, net of income taxes of $181 - 333
Net income $ 32,128 12,729
Earnings per share:
Basic
Income before cumulative effect
of accounting change $ .75 .29
Cumulative effect of accounting
change - .01
Net income $ .75 .30
Diluted
Income before cumulative effect of
accounting change $ .73 .28
Cumulative effect of accounting
change - .01
Net income $ .73 .29
Cash dividends per common share $ .25 .10
Weighted average shares used
in computing earnings per share:
Basic 43,087 42,880
Diluted 43,955 43,555
See accompanying notes.
FLORIDA ROCK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002
(In thousands)
(Unaudited)
2003 2002
Cash flows from operating activities:
Net income $32,128 12,729
Cumulative effect of accounting change - (333)
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation, depletion and amortization 15,598 17,405
Deferred income taxes 6,926 -
Provision for doubtful accounts 117 155
Gain on disposition of property, plant and
equipment (13,238) (321)
Net changes in operating assets and
liabilities:
Accounts receivable 6,559 12,558
Inventories 3,490 (618)
Prepaid expenses and other (2,285) (1,909)
Accounts payable and accrued liabilities (4,759) (17,127)
Other, net (655) (14)
Net cash provided by operating activities 43,881 22,525
Cash flows from investing activities:
Purchases of property, plant and equipment (10,997) (13,982)
Proceeds from the sale of property, plant and
equipment 19,361 352
Additions to other assets (20,074) (1,190)
Collections of notes receivable 18 99
Net cash used in investing activities (11,692) (14,721)
Cash flows from financing activities:
Proceeds from long-term debt - 118
Increase (decrease)in short-term debt - (6,000)
Repayment of long-term debt (25,099) (76)
Exercise of employee stock options 556 409
Payment of dividends (7,154) (2,861)
Net cash used in financing activities (31,697) (8,410)
Net increase (decrease) in cash and cash equivalents 492 (606)
Cash and cash equivalents at beginning of year 38,135 3,845
Cash and cash equivalents at end of period $38,627 $ 3,239
See accompanying notes.
FLORIDA ROCK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,2003
(Unaudited)
(1) Basis of Presentation
The accompanying condensed consolidated financial statements
include the accounts of Florida Rock Industries, Inc. and its
more than 50% owned subsidiaries (collectively, the
"Company"). These statements have been prepared in accordance
with accounting principles generally accepted in the United
States of America for interim financial information and the
instructions to Form 10-Q and do not include all the
information and footnotes required by accounting principles
generally accepted in the United States of America for
complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the results
for the interim period have been included. Operating results
for the three months ended December 31, 2003, are not
necessarily indicative of the results that may be expected for
the fiscal year ended September 30, 2004. The accompanying
condensed consolidated financial statements and the
information included under the heading "Management's
Discussion and Analysis" should be read in conjunction with
the consolidated financial statements and related notes of
Florida Rock Industries, Inc. for the year ended September 30,
2003.
(2) Common Stock Split
On December 3, 2003, the Board of Directors approved a 3 for 2
common stock split. Shareholders of record as of January 2,
2004, received one additional share for each two shares held.
The stock split was effected in the form of a stock dividend
on January 16, 2004. All share and per share amounts for all
periods have been restated to reflect the stock split.
(3) Change in Accounting Principle
Effective October 1, 2002, the Company adopted SFAS No. 143,
"Accounting for Asset Retirement Obligations." The statement
applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition,
construction, development and (or) normal use of the asset.
Statement No. 143 requires that the fair value of a liability
for an asset retirement obligation be recognized in the period
in which it is incurred if a reasonable estimate of fair value
can be made. The fair value of the liability is added to the
carrying amount of the associated asset and this additional
carrying amount is depreciated over the life of the asset.
The liability is accreted at the end of each period through
charges to operating expenses. If the obligation is settled
for other than the carrying amount of the liability, a gain or
loss will be recognized on settlement.
All legal obligations for asset retirement obligations were
identified and the fair value of these obligations were
determined as of October 1, 2002. Previously, the Company
accrued for such costs on the units of production basis over
the estimated reserves. Upon the adoption of the new
standard, the Company recorded the current fair value of its
expected cost of reclamation. The cumulative effect of the
change on prior years resulted in income recognized in the
first quarter of fiscal 2003 of $514,000 before income taxes
and $333,000 after income taxes.
The Company cannot reasonably estimate the fair value of the
asset retirement obligation related to substantially all of
its concrete products segment and all of the cement segment
since the Company is unable to estimate the date the
obligation would be incurred or the cost of the obligation.
For the aggregates segment, an asset retirement obligation was
provided where the Company has a legal obligation to reclaim
the mining site.
The analysis of asset retirement obligation for the three
months ended December 30, 2003 and 2002 is as follows:
2003 2002
Balance at beginning of period $8,649 -
Initial liability on adoption of
the new standard - 8,385
Accretion of expenses 90 88
Payment of obligations (26) (128)
Balance at end of period $8,713 8,345
If the provisions of Statement 143 had been adopted effective
October 1, 2002 earnings before income taxes and net income
would have increased by $22,000 and $14,000, respectively, for
the three months ended December 31, 2002.
(4) New Accounting Pronouncements
In December of 2003, the FASB revised Statement No. 132
"Employers' Disclosures about Pensions and Other
Postretirement Benefits." This Statement retains the
disclosure requirements of the original Statement, which it
replaces, and requires additional disclosures about the
assets, obligations, cash flows and net periodic benefit cost
of defined benefit pension plans and other defined benefit
postretirement plans. The interim period disclosures
required by the Statement are effective for the Company for
the quarter ended March 31, 2004. The annual financial
statement disclosures are effective for the Company for the
fiscal year ended September 30, 2004.
(5) Acquisition
On August 12, 2003, the Company completed the acquisition of
Lafarge Florida, Inc., which imports cement and slag into
Tampa, Florida. Some of the cement is sold and the balance
is either blended or bagged and then sold. The slag is
ground and sold. Clinker is imported into Port Manatee
Florida and is ground into cement and sold. The purchase
price was $124,545,000 in cash including acquisition costs of
$594,000. The purchase price is still subject to adjustment
based on a final working capital settlement. A portion of
the cash purchase price was borrowed under the Company's
existing revolving credit agreements.
The purchase price has been allocated to assets and
liabilities acquired. This allocation is preliminary and may
change as additional information related to the value of
certain assets become available and liabilities as of the date
of acquisition.
All assets acquired including goodwill are attributable to the
Cement and Calcium segment. All of the goodwill is expected
to be amortized for income tax purposes.
The following unaudited pro forma financial information
presents the results of operations as if this acquisition had
occurred October 1, 2002(in thousands, except per share
amounts; unaudited).
Three Months Ended December 31,
2002
Total sales $186,717
Net income $ 15,932
Earnings per share:
Basic $ .37
Diluted $ .37
The pro forma results have been prepared for comparative
purposes only and include certain adjustments for increased
interest expense on the revolving credit agreement. The pro
forma results are not indicative either of the results of
operations that actually would have resulted had the
acquisition occurred October 1, 2002 or of future results.
(6) Stock Option Plan
The Company accounts for stock options under the intrinsic
value method of APB Opinion No. 25. The Company has not
incurred any compensation cost using the intrinsic value
method for employee stock options. If the fair value based
method had been used the following table summarizes the
proforma effect:
Three Months Ended
December 31,
2003 2002
Reported net income $ 32,128 12,729
Compensation cost
determined under fair
value based method, net
of income taxes (437) (330)
Proforma net income $31,691 12,399
Basic earnings per share:
Reported net income $ .75 .30
Compensation cost, net
of income taxes (.01) (.01)
Proforma $ .74 .29
Diluted earnings per share:
Reported net income $ .73 .29
Compensation cost, net
of income taxes (.01) (.01)
Proforma $ .72 .28
(7) Inventories
Inventories consisted of the following (in thousands):
December 31, September 30,
2003 2003
Finished products $ 20,527 21,240
Raw materials 6,398 8,223
Work in progress 1,264 1,704
Parts and supplies 5,400 5,912
$ 33,589 37,079
(8) Gain on Sale of Real Estate
On November 12, 2003, the Company closed on all remaining
installments of a sale of a former quarry site. Gross
proceeds of the sale were $20,250,000 resulting in a pre-tax
gain of approximately $12,927,000 or $8,273,000 after tax.
The proceeds of the sale are held in escrow subject to
completion of like kind exchange transaction. The escrow is
included in other assets in the accompanying balance sheet.
(9) Business Segments
The Company has identified three business segments, each of
which is managed separately along product lines. All of the
Company's operations are in the Southeastern and Mid-Atlantic
States. The Aggregates segment mines, processes and sells
construction aggregates. The Concrete products segment
produces and sells ready-mix concrete and other concrete
products. The Cement and Calcium segment produces and sells
cement and calcium products to customers in Florida, Georgia
and Maryland.
Operating results and certain other financial data for the
Company's business segments are as follows (in thousands):
Three Months Ended
December 31,
2003 2002
Net sales, excluding
freight
Aggregates $ 69,990 54,854
Concrete products 135,026 111,014
Cement and calcium 41,005 14,414
Intersegment sales (25,713) (19,541)
Total net sales,
excluding freight $220,308 160,741
Operating profit
Aggregates $ 31,387 11,671
Concrete products 12,620 5,005
Cement and calcium 8,711 3,330
Corporate overhead (3,201) (1,363)
Total operating $ 49,517 18,643
Profit
Identifiable assets, at quarter end
Aggregates $346,963 319,500
Concrete products 214,318 212,557
Cement and calcium 229,865 113,924
Unallocated corporate
assets 44,702 55,373
Cash items 38,627 3,239
Investments in affiliates 13,776 17,008
Total identifiable assets $888,251 721,601
Aggregates operating profit for the three months ended
December 31, 2003 includes gain on the sale of real estate
of $12,932,000.
(10) Supplemental Disclosures of Cash Flow Information
Cash paid during the nine months ended December 31, 2003 and
2002 for certain expense items are as follows (in
thousands):
2003 2002
Interest expense, net of
amount capitalized $ 522 451
Income taxes $ 7,894 3,608
The following schedule summarizes non-cash investing and
financing activities for the nine months ended December 31,
2003 and 2002 (in thousands):
2003 2002
Additions to property, plant
and equipment from:
Exchanges $ 15 729
(11) Contingent Liabilities
In November 2000, the United States Environmental
Protection Agency through the offices of the United States
Attorney for the District of Columbia commenced an
investigation of DC Materials, Inc. and Cardinal Concrete
Company, both subsidiaries of the Company, with respect to
a parcel of real property leased by DC Materials, Inc. in
the District of Columbia. The investigation consists of
looking into possible violations of the Clean Water Act in
connection with the discharge of runoff water at the
aforementioned site. On September 10, 2003, a former
employee of this facility was convicted of violating the
Clean Water Act. As a result, he has been barred from
receiving federal government contracts or benefits at this
facility. Neither the Company nor its subsidiaries have
been barred from receiving government contracts or benefits
at this facility. The Company and its subsidiaries are
cooperating fully with the investigation, which is still
continuing. Based in part on advice of counsel, in the
opinion of management, the outcome is not expected to have
a material adverse effect on the Company's consolidated
financial statements.
A lawsuit was filed by three national environmental groups
on August 20, 2002 challenging federal agency decisions to
authorize continued limestone mining in Miami-Dade County,
Florida "Lake Belt." Specifically, the environmental
plaintiffs challenge the U.S. Army Corps of Engineers' (the
"Corps") April 2002 decision to issue twelve new mining
permits pursuant to Section 404 of the federal Clean Water
Act, and the U.S. Fish and Wildlife Service's June 2001
decision not to require formal consultation under the
federal Endangered Species Act regarding those permits.
The environmental plaintiffs claim that the two federal
agencies violated the Clean Water Act, the Endangered
Species Act, the Migratory Bird Treaty Act, and the
National Environmental Policy Act. They ask the court to
set aside the April 2002 permits and to enjoin the Corps
from "authorizing any further mining within the Lake Belt
project area unless and until the Corps fully complies with
the requirements of the Clean Water Act, Migratory Bird
Treaty Act, and National Environmental Policy Act."
The mining companies holding the April 2002 permits were
not named as defendants in the lawsuit by the environmental
plaintiffs; however, since the mining companies would be
adversely affected if the environmental groups were to
obtain all of the relief they seek, on September 18, 2002,
two Motions to Intervene were filed on behalf of several of
the mining companies, including the Company. The court has
not yet ruled on the Motions to Intervene.
The Company is unable to assess at this time, with any
degree of certainty, the impact on the Company and its
future financial performance of an adverse judgment in this
lawsuit.
A lawsuit was filed by three environmental organizations on
June 26, 2003, challenging federal agency decisions to
authorize the Company's proposed limestone mine in Ft.
Myers, Florida. Specifically, the environmental
plaintiffs challenge the U.S. Army Corps of Engineers' (the
Corps") April 2003 decision to issue a new mining permit
pursuant to Section 404 of the federal Clean Water Act, and
the U.S. Fish and Wildlife Service's January 30, 2002,
biological opinion concluding that this limestone mining
would not jeopardize the continued existence of the Florida
panther. The environmental plaintiffs claim that the two
federal agencies violated the Clean Water Act, the
Endangered Species Act, the Administrative Procedures Act,
and National Environmental Policy Act. They ask the court
to invalidate that the U.S. Fish and Wildlife Service's
January 30, 2002, biological opinion, set aside the April
2003 Corps permit, and to remand U.S. Fish and Wildlife
Service's January 30, 2003, biological opinion so that the
Service can prepare "a complete and adequate" biological
opinion.
The Company was not named as defendant in the lawsuit by
the environmental plaintiffs; however, since the Company
would be adversely affected if the environmental groups
were to obtain all of the relief they seek, on September 2,
2003, the Company filed a Motion to Intervene. The court
has not yet ruled on the Motion to Intervene. The federal
defendants to this lawsuit have filed a Motion to Transfer
Venue to the Middle District of Florida. The Court denied
this Motion to Transfer Venue.
The Company is unable to assess at this time, with any
degree of certainty, the impact on the Company and its
future financial performance of an adverse judgment in this
lawsuit.
The Company and its subsidiaries are involved in litigation
on a number of other matters and are subject to certain
claims which arise in the normal course of business, none
of which, in the opinion of management, are expected to
have a materially adverse effect on the Company's
consolidated financial statements.
The Company has retained certain self-insurance risks with
respect to losses for third party liability and property
damage.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Operating Results
The Company's operations are influenced by a number of external
and internal factors. External factors include weather,
competition, levels of construction activity in the Company's
markets, the cost and availability of money, appropriations and
construction contract lettings by federal and state governments,
fuel costs, transportation costs, driver availability, labor
costs and inflation. Internal factors include sales mix, plant
location, quality and quantities of aggregates reserves, capacity
utilization and other operating factors.
Financial results of the Company for any individual quarter are
not necessarily indicative of results to be expected for the
year, due primarily to the effect that weather has on the
Company's sales and production volume. Normally, the highest
sales and earnings of the Company are attained in the Company's
third and fourth quarters and the lowest sales and earnings are
attained in the Company's first and second quarters. In
addition, quarterly results will be affected by planned
maintenance at the cement plant. The Company expenses
maintenance costs at the cement plant, which can be significant,
when incurred. The Company expensed planned maintenance of
$2,300,000 in the first quarter of fiscal 2004, as compared to
$1,878,000 in the first quarter of fiscal 2003. The plant was
shut down for 14 days in the first quarter of fiscal 2004 and
nine days in the first quarter of fiscal 2003 for planned
maintenance.
For the first quarter of fiscal 2004, which ended December 31,
2003, consolidated sales increased 37.2% to $225,392,000 from
$164,246,000 in the same quarter last year. The cement
operations acquired in August 2003 contributed sales of
$25,384,000. Excluding this acquisition, sales would have been
$200,008,000 , which represents a 21.8% increase. The increase
in sales was due to increased revenues in all three segments.
Revenues in the concrete products segments increased due to
higher volumes of all products and an increase in the average
selling price. Revenues in the aggregates segment increased as a
result of higher volumes. Revenues increased in the cement and
calcium segment due to the acquisition and higher cement volumes
from existing operations partially offset by lower average
selling price of cement. Cement volumes were also unusually
high at our Newberry plant as certain of our trading partners
transferred extra volumes to us during the quarter to accommodate
short-term operating changes at their respective facilities.
For all three business segments, volumes were aided by more
favorable weather conditions in all our major markets.
For the contribution made to net sales and operating profit from
each business segment, see Note 9 to the Condensed Consolidated
Financial Statements.
Gross profit for the first quarter increased 63.3% to $58,803,000
from $36,020,000 for the same quarter last year. Gross profit
margin for the first quarter increased to 26.1% from 21.9% last
year. Gross profit and margin improved in all three segments.
The improvement in the aggregates segment was due to volume
increases which resulted in lower operating costs per ton and
lower depreciation expense. These improvements were partially
offset by start up losses of new quarry operations that were
approximately $1,000,000 higher this year. The improvement in
the cement and calcium segment is due to the acquisition in
August 2003 and in existing operations lowering the cost per unit
as a result of increasing volumes. The improvement in gross
profit in the concrete products segment was due to volume
improvements which lowered the per unit cost and lower
depreciation expense.
Selling, general and administrative expenses for the third
quarter increased to $22,218,000 from $17,377,000 last year
constituting 9.9% of sales as opposed to 10.6% last year. The
increased amount is primarily due to increased profit sharing
expense (which is linked to profitability before real estate
gains)and additional new site permitting expenses.
On November 12, 2003, the Company closed on all remaining
installments of a sale of its former quarry site at Naples,
Florida. Gross proceeds of the sale were $20,250,000 resulting
in a pre-tax gain of approximately $12,927,000 or $8,273,000
after tax.
Interest expense for the first quarter increased to $627,000 from
$469,000 for the same quarter last year. This increase is
attributable to higher debt outstanding under the Company's
revolver due to the acquisition in August 2003.
Interest income for the first quarter decreased to $288,000 as
compared to $529,000 for the same quarter last year. This is
primarily due to the loss of interest on the real estate
transaction described in note 8.
Included in other income is the Company's equity in operating
results of 50% owned joint ventures. The equity in these ventures
was a gain of $655,000 for the first quarter of fiscal 2004 as
compared to a gain of $13,000 for the same period last year.
Income tax expense increased $11,460,000 for the first quarter of
fiscal 2004. This is due to higher income before taxes and an
increase in the tax rate to 36.0% versus 35.2% last year.
Liquidity and Capital Resources. For the first quarter of
fiscal 2004, cash provided by operating activities of $43,881,000
and proceeds from sale of property, plant and equipment of
$19,361,000 funded the repayment of $25,099,000 of debt;
purchases of property, plant and equipment of $10,997,000,
additions to other assets of $20,074,000 and payment of dividends
of $7,154,000.
For the first quarter of fiscal 2003, cash provided by operating
activities of $22,525,000 funded the repayment of $6,000,000 of
the short-term overnight lines; purchases of property, plant and
equipment of $13,982,000 and payment of dividends of $2,861,000.
Based on current expectations, management believes that its
internally generated cash flow and access to existing credit
facilities are sufficient to meet the liquidity requirements
necessary to fund operations, capital requirements, debt service
and future dividend payments. At December 31, 2003, there was
available $150,000,000 under a long-term revolver and $65,000,000
available under overnight lines of credit. In addition, there
is approximately $28,000,000 that could be re-borrowed under
insurance policies.
Working capital at December 31, 2003 was $91,592,000 as compared
to $94,371,000 at September 30, 2003.
While the Company is affected by environmental regulations, such
regulations are not expected to have a major effect on the
Company's capital expenditures or operating results.
Critical Accounting Policies. The Consolidated Financial
Statements and Notes to Consolidated Financial Statements contain
information that is pertinent to Management's Discussion and
Analysis. The preparation of financial statements in conformity
with accounting principles generally accepted in the United
States of America requires management to make estimates and
assumptions about future events that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities. Future events and their effects cannot be
determined with absolute certainty. Therefore, the
determination of estimates requires the exercise of judgment
based on various assumptions and other factors such as historical
experience, current and expected economic conditions, and in some
cases, actuarial calculations. We constantly review these
significant factors and make adjustments where facts and
circumstances dictate. Actual results could differ from those
estimates. Historically, actual results have not significantly
deviated from estimated results determined using the factors
described above.
Note 1 to the Consolidated Financial Statements provides
detail on the application of these and other accounting policies.
These critical accounting policies and Note 1 should be read in
conjunction with this Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The following is a discussion of the accounting policies
considered to be most critical to the Company. These accounting
policies are both most important to the portrayal of the
financial condition and results, and require management's most
difficult, subjective or complex judgments often as a result of
the need to make estimates about the effect of matters that are
inherently uncertain.
Self-insurance reserves. It is our policy to self insure
for certain insurable risks consisting primarily of physical loss
to property, business interruptions, workers' compensation,
comprehensive general liability, product liability and auto
liability. Insurance coverage is obtained for catastrophic
property and casualty exposures as well as those risks required
to be insured by law or contract. Based on an independent
actuary's estimate of the aggregate liability for claims
incurred, a provision for claims under the self-insured program
is recorded and revised annually. The actuarial estimates are
subject to uncertainty from various sources, including changes in
claim reporting patterns, claims settlement patterns, judicial
decisions, legislation, and economic conditions. Although the
Company believes that the actuarial estimates are reasonable,
significant differences related to the items noted above could
materially affect the Company's self-insurance obligations and
future expense.
Long-lived assets. The Company periodically evaluates the
period of depreciation or amortization for long-lived assets to
determine whether current circumstances warrant revised estimates
of useful lives. The Company reviews its property, plant and
equipment for impairment whenever events or changes in
circumstances indicate the carrying value of an asset may not be
recoverable. Recoverability is measured by a comparison of the
carrying amount to the net undiscounted cash flows expected to be
generated by the asset. An impairment loss would be recorded
for the excess of net carrying value over the fair value of the
asset impaired. The fair value is estimated based on expected
discounted future cash flows. The results of impairment tests
are subject to management's estimates and assumptions of
projected cash flows and operating results. The Company
believes that, based on current conditions, materially different
reported results are not likely to result from long-lived asset
impairments. However, a change in assumptions or market
conditions could result in a change in estimated future cash
flows and the likelihood of materially different reported
results.
Intangible assets and goodwill. In July 2001, the
Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill
and Other Intangible Assets." SFAS 142 requires companies to
cease amortizing goodwill that existed at the time of adoption
and establish a new method for testing goodwill for impairment on
an annual basis at the reporting unit level (or an interim basis
if an event occurs that might reduce the fair value of a
reporting unit below its carrying value). The Company has
determined that it has three reporting units and the annual
impairment test will be performed for these three reporting
units. SFAS 142 also requires that the carrying value of an
identifiable intangible asset that has an indefinite life be
determined by using a fair value based approach.
The valuation of goodwill and intangibles with indefinite
useful lives for impairment requires management to use
significant judgments and estimates including, but not limited
to, projected future revenue and cash flows. The Company
believes that, based on current conditions, materially different
reported results are not likely to result from goodwill and
intangible impairments. However, a change in assumptions or
market conditions could result in a change in estimated future
cash flows and the likelihood of materially different reported
results.
Inventory. Inventory for the aggregates segment on a
quarterly basis is based on internal estimates of production
during the period. Primarily semi-annually an outside consultant
measures the volume of aggregates inventory. Aggregates
inventory is adjusted to the amounts shown in the report of the
outside consultant.
Assessments, Claims and Litigation. From time to time,
the Company is involved with assessments, claims and litigation.
The Company uses both in-house and outside legal counsel to
assess the probability of loss. The Company establishes an
accrual when the claims and litigation represent a probable loss
and the cost can be reasonably estimated. Accruals for
remediation efforts are recorded no later than the time a
feasibility study is undertaken and the Company commits to a
formal plan of action. Additionally, legal fees associated with
these matters are accrued at the time such claims are made.
There can be no assurance that the ultimate resolution of these
assessments, claims and litigation will not differ materially
from the Company estimates.
Employee Benefits. Under the provisions of SFAS No.87,
"Employer's Accounting for Pensions" and SFAS No. 106,
"Employer's Accounting for Postretirement Benefits Other Than
Pensions," measurement of the obligations under employee benefits
plans are subject to a number of assumptions. These include the
rate of return on plan assets, health care cost trend rates and
the rate at which the future obligations are discounted to the
value of the liability.
Related Party Transactions. Patriot Transportation
Holding, Inc. ("Patriot"), a related party, hauls diesel fuel and
other supplies for the Company. Charges for such services are
based on prevailing market prices. The Company also leases
various aggregate mining and other properties paying rent or
royalties based on long-term contracts entered into during mid
1980's and early 1990's. In addition, the Company provides
administrative service to Patriot and Patriot provides
construction management services to the Company. These services
are provided at market prices. During fiscal 2002, Patriot
agreed to sell for $15,000,000 land to the Company. In May 2003,
Patriot agreed to sell another parcel of property for $1,638,000.
The closing of these sales is to occur no later than December 31,
2004. In December 2003, the Company has also agreed to purchase
another parcel of land from Patriot for $13,000,000. The sale is
subject to a definitive agreement and the closing date is to be
determined. These transactions have been reviewed and approved on
behalf of the Company by a committee of independent directors.
Outlook. While we can't anticipate the continuation of
the very favorable weather, we experienced in the first quarter,
we remain very optimistic about our markets in the near term.
Commercial construction demand does seem to be still slightly
better than a year ago and residential construction continues to
enjoy sustained strength.
Forward-Looking Statements. Certain matters discussed in
this report contain forward-looking statements that are subject
to risks and uncertainties that could cause actual results to
differ materially from these indicated by such forward-looking
statements. These forward-looking statements relate to, among
other things, capital expenditures, liquidity, capital resources
and competition and may be indicated by words or phrases such as
"anticipate," "estimate," "plans," "project," "continuing,"
"ongoing," "expects," "management believes," "the Company
believes," "the Company intends" and similar words or phrases.
The following factors are among the principal factors that could
cause actual results to differ materially from the forward-
looking statements: availability and terms of financing; the
weather; competition; levels of construction activity in the
Company's markets; cement shipments; fuel and electric costs;
transportation costs; inflation; quality and quantities of the
Company's aggregates reserves; residential and nonresidential
construction; public spending for federal highways and
infrastructure; governmental regulations; ocean shipping rates;
and management's ability to determine appropriate sales mix,
plant location and capacity utilization.
However, this list is not a complete statement of all
potential risks or uncertainties. These forward-looking
statements are made as of the date hereof based on management's
current expectations and the Company does not undertake, and
affirmatively disclaims, an obligation to update such statements,
whether as a result of new information, future events or
otherwise. Additional information regarding these and other risks
factors may be found in the Company's other filings made from
time to time with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk.
There are no material changes to the disclosures made in Form 10-
K for the fiscal year ended September 30, 2003 on this matter.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures.
As required by Rule 13a-15 under the Exchange Act, as of
December 31, 2003, the Company carried out an evaluation of
the effectiveness of the design and operation of the
Company's disclosure controls and procedures. This
evaluation was carried out under the supervision and with
the participation of the Company's management, including the
Company's President and Chief Executive Officer, Chief
Financial Officer and Chief Accounting Officer. The
evaluation conducted by, the Company's President and Chief
Executive Officer, Chief Financial Officer and Chief
Accounting Officer has provided them with reasonable
assurance that the Company's disclosure controls and
procedures are effective in alerting them in a timely manner
to material information required to be included in periodic
SEC filings.
Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information
required to be disclosed in Company reports filed or
submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed in Company reports
filed under the Exchange Act is accumulated and communicated
to management, including the Company's Chief Executive
Officer, Chief Financial Officer and Chief Accounting
Officer, as appropriate, to allow timely decisions regarding
required disclosures.
(b) Changes in Internal Controls. There have been no changes in
internal controls or in other factors that could
significantly affect these controls subsequent to the date
of their evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The response to this item is submitted as a
separate section entitled "Exhibit Index" starting on page
18 of this Form 10-Q.
(b) Reports on Form 8-K. During the three months ended
December 31, 2003, the Company filed the following reports
on Form 8-K:
On October 27, 2003, the Company filed an amendment to the
Form 8-K filing financial statements and Pro Forma
Financial Informative related to the Lafarge Florida, Inc.
acquisition under Item 7 "Financial Statements, Pro Forma
Financial Statements and Exhibits."
On November 17, 2003, the Company filed a Form 8-K filing a
copy of the Company's press release on earnings for the
quarter ended December 31, 2003 under Item 7 "Financial
Statements and Exhibits", Item 9 "Regulation FD
Disclosures" and Item 12 "Disclosure of Results of
Operations and Financial Condition."
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
January 22, 2004 FLORIDA ROCK INDUSTRIES, INC.
JOHN D. BAKER, II
John D. Baker, II
President and Chief Executive
Officer
JOHN D. MILTON, JR.
John D. Milton, Jr.
Executive Vice President,
Treasurer and Chief Financial
Officer
WALLACE A. PATZKE, JR.
Wallace A. Patzke, Jr.
Vice President, Controller
and Chief Accounting Officer
FLORIDA ROCK INDUSTRIES, INC.
FORM 10-Q FOR THE QUARTER ENDED DECEMBER, 2003
EXHIBIT INDEX
(3)(a)(1) Restated Articles of Incorporation of Florida
Rock Industries, Inc., filed with the Secretary
of State of Florida on May 9, 1986, incorporated
by reference to an exhibit previously filed with
Form 10-Q for the quarter ended December 31,
1986. File No. 1-7159.
(3)(a)(2) Amendment to the Articles of Incorporation of
Florida Rock Industries, Inc. filed with the
Secretary of State of Florida on February 19,
1992, incorporated by reference to an exhibit
previously filed with Form 10-Q for the quarter
ended September 30, 1993. File No. 1-7159.
(3)(a)(3) Amendments to the Articles of Incorporation of
Florida Rock Industries, Inc. filed with the
Secretary of the State of Florida on February 7,
1995, incorporated by reference to an appendix
to the Company's Proxy Statement dated December
15, 1994.
(3)(a)(4) Amendment to the Articles of Incorporation of
Florida Rock Industries, Inc. filed with the
Secretary of State of Florida on February 4,
1998, incorporated by reference to an exhibit
previously filed with Form 10-Q for the quarter
ended March 31, 1998. File No. 1-7159.
(3)(a)(5) Amendment to the Articles of Incorporation of
Florida Rock Industries, Inc. filed with the
Secretary of State of Florida on May 5, 1999.
A form of such amendment was previously filed
as Exhibit 4 to the Company Form 8-K dated May
5, 1999 and is incorporated by reference
herein. File No.1-7159.
(3)(b)(1) Restated Bylaws of Florida Rock Industries,
Inc., adopted December 1, 1993, incorporated by
reference to an exhibit previously filed with
Form 10-K for the fiscal year ended September
30, 1993. File No. 1-7159.
(3)(b)(2) Amendment to the Bylaws of Florida Rock
Industries, Inc. adopted October 5, 1994,
incorporated by reference to an exhibit
previously filed with Form 10-K for the fiscal
year ended September 30, 1994. File No. 1-
7159.
(3)(b)(3) Amendment to the Bylaws of Florida Rock
Industries, Inc. adopted February 4, 1998,
incorporated by reference to an exhibit
previously filed with Form 10-Q for the quarter
ended March 31, 1998. File No. 1-7159.
(3)(b)(4) Amendment to the Bylaws of Florida Rock
Industries, Inc. adopted December 5, 2001.
incorporated by reference to an exhibit
previously filed with Form 10-Q for the quarter
ended December 31, 2001. File No. 1-7159.
(4)(a) Articles III, VII, and XIII of the Articles of
Incorporation of Florida Rock Industries, Inc.
incorporated by reference to exhibits previously
filed with Form 10-Q for the quarter ended
December 31, 1986 and Form 10-K for the fiscal
year ended September 30, 1993 and Articles XIV
and XV, of the Articles of Incorporation of
Florida Rock Industries, Inc. incorporated by
reference as appendix to the Company's Proxy
Statement dated December 15, 1994. File No. 1-
7159.
(4)(b) Credit Agreement dated as of June 28, 2000 among
Florida Rock Industries, Inc.; First Union
National Bank; Bank of America, N.A.; SunTrust
Bank; and First Union Securities, Inc.;
incorporated by reference to an exhibit
previously filed with Form 10-Q for the quarter
ended June 30, 2000. File No. 1-7159.
(4)(c) The Company and its consolidated subsidiaries
have other long-term debt agreements which do
not exceed 10% of the total consolidated assets
of the Company and its subsidiaries, and the
Company agrees to furnish copies of such
agreements and constituent documents to the
Commission upon request.
(4)(d) Rights Agreements, dated as of May 5, 1999
between the Company and First Union National
Bank, incorporated by reference to Exhibit 4 to
the Company's Form 8-K dated May 5, 1999. File
No. 1-7159.
(10)(a) Employment Agreement dated June 12, 1972 between
Florida Rock Industries, Inc. and Charles J.
Shepherdson, Sr. and form of Addendum thereto,
incorporated by reference to an exhibit
previously filed with Form S-1 dated June 29,
1972. File No. 2-44839.
(10)(b) Addendums dated April 3, 1974 and November 18,
1975 to Employment Agreement dated June 12, 1972
between Florida Rock Industries, Inc., and
Charles J. Shepherdson, Sr., incorporated by
reference to an exhibit previously filed with
Form 10-K for fiscal year ended September 30,
1975. File No. 1-7159.
(10)(c) Amended Medical Reimbursement Plan of Florida
Rock Industries, Inc., effective May 24, 1976,
incorporated by reference to an exhibit
previously filed with Form 10-K for the fiscal
year ended September 30, 1980. File No. 1-7159.
(10)(d) Amendment No. 1 to Amended Medical Reimbursement
Plan of Florida Rock Industries, Inc. effective
July 16, 1976, incorporated by reference to an
exhibit previously filed with Form 10-K for the
fiscal year ended September 30, 1980. File No.
1-7159.
(10)(e) Tax Service Reimbursement Plan of Florida Rock
Industries, Inc. effective October 1, 1976,
incorporated by reference to an exhibit
previously filed with Form 10-K for the fiscal
year ended September 30, 1980. File No. 1-
7159.
(10)(f) Amendment No. 1 to Tax Service Reimbursement
Plan of Florida Rock Industries, Inc.,
incorporated by reference to an exhibit
previously filed with Form 10-K for the fiscal
year ended September 30, 1981. File No. 1-
7159.
(10)(g) Amendment No. 2 to Tax Service Reimbursement
Plan of Florida Rock Industries, Inc.,
incorporated by reference to an exhibit
previously filed with Form 10-K for the fiscal
year ended September 30, 1985. File No. 1-
7159.
(10)(h) Summary of Management Incentive Compensation
Plan as amended effective October 1, 1992.
Previously filed with Form 10-K for the fiscal
year ended September 30, 1993. File No. 1-7159.
(10)(i) Florida Rock Industries, Inc. Management
Security Plan, incorporated by reference to an
exhibit previously filed with Form 10-K for the
fiscal year ended September 30, 1985. File No.
1-7159.
(10)(j) Various mining royalty agreements with Patriot
Transportation Holding, Inc. or its subsidiary,
none of which are presently believed to be
material individually, but all of which may be
material in the aggregate, incorporated by
reference to exhibits previously filed with Form
10-K for the fiscal year ended September 30,
1986. File No. 1-7159.
(10)(k) Florida Rock Industries, Inc. 1996 Stock Option
Plan, incorporated by reference to an appendix
to the Company's Proxy Statement dated December
18, 1995. File No. 1-7159.
(10)(l) Florida Rock Industries, Inc. 2000 Stock Option
Plan, incorporated by reference to an exhibit
previously filed with the Proxy Statement dated
December 20, 2000. File No. 1-7159.
(10)(m) Amendment to Florida Rock Industries, Inc. 2000
Stock Option Plan, incorporated by reference to
an exhibit previously filed with Form 10-Q for
the Quarter ended March 31, 2003.
File No. 1-7159
(11) Computation of Earnings Per Common Share.
(14) Financial Code of Ethical Conduct. Previously
filed with Form 10-K for the fiscal year ended
September 30, 2003. File No. 1-7159
(31)(a) Certification of John D. Baker, II
(31)(b) Certification of John D. Milton, Jr.
(31)(c) Certification of Wallace A. Patzke, Jr.
(32) Certification under Section 906 of Sarbanes-
Oxley Act of 2002
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